Integris

Profile: Martyn Wates, CFO of the Co-operative Group

Melanie stern, Accountancy Age, Thursday 23 October 2008 at 17:20:00

It has an image as the caring, sharing face of the supermarket sector �" butThe Co-operative Group is serious about its business, CFO Martyn Wates tells ourreporter

Structured investment vehicles losing millions of pounds to the sub-primecrisis, landmark acquisitions, OFT consultations, lucrative joint ventures inChina, doubling shareholder dividends �"the Co-operativeGroup is no less corporate than anyone in the City.

But perception being nine-tenths of reality, the company’s mutual model comesover a tad too cuddly for many in the business world; unlisted, owned andgoverned by millions of ordinary people united by a common aim of doing good,where possible, by doing well.

From the 12th floor of Manchester’s New Century House, Co-op’s chieffinancial officer Martyn Wates can glance across a patch of prime city realestate that houses the group’s central offices, its financial services HQ in the25-storey CIS Tower over the way, clad top to bottom in solar panelling.

Against forbidding views of the Pennines, the ageing cluster of buildingsserving as the Co-op nucleus looks a little worn. But the group plans to flattenthe whole area and build a new office complex. ‘We’ll do it sympathetically,though,’ says Wates surveying from a great height.

The Co-operative Group is nothing if not sympathetic by nature, being wed toa core of social goals harking to its beginnings as a movement for the welfareof the poor more than a century ago. If you know anything about Co-op, you’llknow it for those little local supermarkets whose owner is some sort ofsocialist organisation �" though you’re sketchy on the details �" or as the ownerof that internet bank, smile.

Co-op’s financial services business posted a slight increase in profit forthe first half of 2008, reporting ‘shareholder profit’ before tax, significantitems and short-term investment fluctuations of £73.4m, up from £35.4m at thesame time in 2007. The group reported 2007 operating profit ‘before significantitems and chan-ges in valuations of investment properties’ of almost £323m, a35.2% year-on-year increase.

Co-op members enjoyed dividends (Co-op calls it ‘total share of profitpayment’) of £38.1m in 2007, compared to £19.6m in 2006. Where Co-op has been apoorer performer is in pushing its brand as a group and among its businessunits.

As Wates concedes, there has long been a lack of any cohesive message, butthis has merely reflected how much change there has been as today’s group hasemerged as a mothership to countless minnow mutuals across the UK, and theworld’s largest consumer co-operative society.

‘We haven’t been able to project ourselves in the way that, say, Tesco has,’says Wates. Indeed, Tesco doesn’t own 311 separate business subsidiaries orsocieties, as Co-op does.

The strategy has been fruitful: the company’s purchase of convenience storechains Alldays, in 2002, then Balfour in 2003 helped it quietly grow its estateto become the UK’s number five food retailer. On top of this, the group is alsothe UK’s biggest farmer with an estate of 700,000 acres of farmland acrossEngland and Scotland, and operates a £250m car dealership. Between absorbingsmaller co-operatives and buying up portfolio-boosters like Alldays, the grouphas been one of the most acquisitive in the UK’s business landscape. So clarityhas been difficult.

This has been changing since the group enlarged following the merger withanother mutual, United Co-operatives, in May last year, the owner of UnitedNorwest Co-operative where Wates had been CFO since 2002 (he was madeCFO-designate to succeed Co-op’s retiring CFO Brian Portman).

A year later, this May, came the pivotal £1.5bn Somerfield acquisition,bumping Co-op’s 5% share of the UK supermarket business up to 8%.

By the time you read this, Wates will have the Office of Fair Trading’sdecree on if, and how many, of Somerfield’s 3,000 stores it must dispose of tosatisfy competition criteria; he will then add to his £1.5bn budget to revampCo-op’s existing network of 4,300 stores (as well as its other retail-basedbusinesses, such as its 90 banking sites and 374 travel agency operations) toinclude those it retains.

‘We’ve been waiting for critical mass within the business before we got outthe big guns and now we’ve got it,’ says Wates. ‘In the past, people probablyviewed us as a bit quaint, old-fashioned, safe, solid and trustworthy, but notas exciting or modern as our rivals. We’re doing a lot of work to overhaul ouroffering now. Our shares would be significantly up if we were a listed business,because I know the Somerfield purchase is a value-enhancing transaction.’

As CFO of an organisation that can never unpick its financial targets,speaking with Wates is more akin to speaking with a CEO who can talk about whyhis baked beans are the best, then switch to the forensics of discounted cashflow. A good man to have around.

‘I’ve met a few FDs, blue-sky men, who consider themselves above thenitty-gritty. But what makes this business great is the detail; the customergoing into our shop and buying something, leading to profit and we never forgetthat. And I like to think I can argue with anyone strategically. But if youdon’t know what’s going on, you’re just throwing the dice. You’re gambling.’

Not a strategy that would sit well with an ethics-based model.

Active engagement in companies and regions where the group believes money andpositive change can be made is underpinned by Wates who backs the groupoperating, for example, local supermarkets in areas its rivals shun because itis too deprived, too dangerous, and deemed not worth the time.

Co-op, Wates says, will stick with these often loss-making operations becausethey make real the group’s social policies.

The group made a £20m investment in July 2007 in a joint venture with Chinesepharmaceutical generics manufacturer Tasly Group, to build and staff aproduction plant in the country. Many will wonder how Co-op’s strict ethical policies will be effected in a country also noted for its relationship withsweatshop labour.

Wates argues that engagement is better than avoidance. ‘A lot of plcs are notventuring there yet and I suppose it does raise ethical issues: why should Co-optrade with China? Because we will work with this company which already has highstandards, to raise standards in that country. We are commercially focused andwe can make the ethics in that deal work, having done a lot of social auditingon employee conditions and manufacturing practices over there.’

Social responsibility

One area in which Wates seems uncomfortable is talking about the group’s useof structured investment vehicles, on which it lost £31.8m in 2007 as thesub-prime crisis took hold. The group’s last Responsible Business report saidCo-op was founded on working for ordinary people who were fed up of‘profiteering shopkeepers selling adulterated food’.

Are SIVs socially responsible? And if so, are those investing in SIVs notparty to profiteering from adulterated loans, as we now know they frequentlyare?

In his defence, Wates wasn’t yet CFO of Co-op when these investments weremade. ‘But there were so many layers to these products, weren’t there? Someonesold a standard mortgage and then built a mortgage book and an income streamfrom that, which was sold to another institution. This was then aggregated withothers and bounced on again; but by then they’re just traded assets, aren’tthey? What we were picking up was a financial asset.

‘That income stream I am paying £35m for will give me £3m a year for the next20 years. Had that asset been traceable to arms manufacturing or something likethat, you’re right, we would not have been there. But it was divorced fromthat.’

This seems no less profit-minded than any regular corporate’s attitude toinvestment. Which only serve to illustrate the rather unique position thatWates, as CFO of a company that sells products on the back of ethics, is in.

Co-operative but still corporate

Accusations that Co-op isn’t under the same economic pressure as othercompanies disappoint Wates, who cites some figures �" doubled dividends in 2007and the intention to double profit in 2008/09 �" and his dual responsibility tomake the business as profitable as possible while handing out millions each yearto the long list of social, ethical or charitable groups it funds.

‘We’ve looked at distribution strategies among our competitors, askedourselves what returns our shareholders expect and what we can afford to pay,and we’ve benchmarked our distribution policies along with the best of them,’ hesays. ‘Instead of paying dividends to some faceless institutional shareholders,our dividends go to our members, the people who shop with us, our employees,various charities and the local communities we trade in.

‘Some people can use ethics as an easy excuse to hide behind [for lack ofprofits or dividends]. If you’re ethical, you can’t shy away from beingefficient, challenging and driving hard. We approach investment and shareholderreturn on capital the same way anyone else does. Being a one-person, one-voteorganisation we’re certainly different. But we’re a part of the corporateworld.’

The full version of this interview appeared in the October issue ofFinancialDirector

Global ethics: enlightened path

Charles Tilley, Accountancy Age, Thursday 23 October 2008 at 17:02:00

Ethics should not be a casualty of the credit crunch

Short-termism got us here. And, as business for many companies becomes afight for survival, short-termism threatens to be the corporate management creedfor the downturn too.

Undeniably, the bald message from hard-pressed finance teams to their boardswill be: it’s the cashflow, stupid.

But does corporate ethics deserve to be an early casualty of these worryingtimes? Clearly not, if

you care about professionalism, your workforce, or about the future of theplanet.

And there are pragmatic, self-interested reasons for companies too. Firstly,business leaders must build sustainable enterprises. Spectacular failures thistime round, like Lehman Brothers and AIG, have not been shown to be corrupt, butthey and indeed swathes of the banking sector failed to build lastingbusinesses.

The reasons behind this are as fiendishly complex as a tranche of sub-primedebt. But what we do know is that in many financial service companies riskmanagers didn’t enjoy the kudos of deal makers, that individual bonuses were notaligned with company strategy, and that the risk placed on the company wasn’tfactored in enough to exceptional remuneration.

In the end maintaining professional standards is what underpins business. Redlights should flash on risk registers not just when performance is unduly bad,but inexplicably good. A corporate culture rooted in solid values is likely tosee that as common sense. A greed culture won’t.

Now in the downturn firms have the opportunity to embed ethics and a saneattitude to risk into their strategy. Bolting on ethics to corporate behavioursis no more effective than a sterile tick-box compliance culture.

And there is another factor too: regulation, until recently a dirty word, issuddenly fashionable again.

Organisations that choose to cut back on their ethical performance will beout of step, and possibly exposed to hefty fines.

So whatever the day-to-day pressures on cashflow as the downturn bites,companies must resist the temptation to cut corners.

They can take comfort that research by the Institute of Business Ethics showsthat firms that take ethics seriously prosper most.

Charles Tilley is chief executive of CIMA, whose eventGlobal ethics a myth? is on 19 November. Go to cimaglobal.com/ethics

FSB urges govt to create ₤1bn survival fund

AccountancyAge.com, Accountancy Age, Thursday 23 October 2008 at 14:32:00

FSB is urging the government to create ₤1bn survival fund as Darling andMandelson plead with banks

While Alistair Darling and Lord Mandelson, the business secretary, ispleading with Britain’s banks to lift lending to small business to last year'slevels, theFederationof Small Business (FSB) has wants the government to go further and create£1bn Small Business Survival Fund.

FSB is suggesting part of the the funds should be provided by the EuropeanInvestment Bank, which has already earmarked £1bn for small UK business, but itwants Brussels to drop the tight conditions tied to the money, the The DailyTelegraph reports.

The federation hopes to meet the chancellor and the banks next week afterdiscussing the package with Baroness Vadera, minister for competitiveness andsmall business, and opposition parties.

FSB is also proposing big businesses which fail to honour their bills in timeto be named and shamed.

Further reading:

ReadThe Daily Telegraph story

AATV: Banks' audits and ICUs

Accountancy Age, Thursday 23 October 2008 at 11:56:00

Banks beef up their intensive care units while pressure grows for a review oftheir audits

Alex Hawkes talks to David Jetuah about bank moves to beef up their intensivecare units to help struggling businesses while Gavin Hinks explains the pressurebuilding for a review of bank audits

On the money with Gavin Hinks

Gavin Hinks, Accountancy Age, Thursday 23 October 2008 at 11:37:00

Hold on to your hats, because if I am not very much mistaken accountants andthe profession are in for a rough ride

With the government’s massive bail out of banks and the markets looking likethey’ve bought into Gordon Brown’s solution, it provides a breather, time topoint the finger and to demand change. And some of that flak is heading yourway.

course, anyone could have told you this, no self respecting accountant couldimagine anything different.

But last week, as Brown’s plan was discussed in the House, the targeting ofthe profession began somewhat in earnest.

Michael Meacher, a former government minister, was first protesting at ‘dodgyauditing’. He is already on record as having written to the prime ministercalling for a Committee of Inquiry to look into ‘governance, accounting andauditing of the banks’.

Then came Harry Cohen, a CIPFA member, similarly calling for action, andtabling a motion that some form of improvement in the accounting and auditingneeded to go alongside the rescue package.

There used to be a time when Austin Mitchell would get all polemical overthis sort of thing, but Meacher and Cohen are today’s advance guard calling forchange.

Once again accounting is a matter for politics. Just as the fair valuestandard has become a cause for comment for everyone from Brown to NicholasSarkozy, you couldn’t say right now that audit won’t be too.

Politicians live and breathe this kind of thing and they can smell blood. Thebanks are smarting from having to be rescued and they sense that now is the timefor a left wing agenda to capitalise and move power back to the state.

Expect to hear more from these voices.

Gavin Hinks is the editor of Accountancy Age

Plug pulled on SMEs' electricity supplier

Kevin Reed, Accountancy Age, Thursday 23 October 2008 at 11:25:00

E4B enters adminstration: SMEs' electricity supply safe

An electricity supplier to 40,000 small businesses has enteredadministration.

Administrators from PricewaterhouseCoopers were appointed to Electricity 4Business yesterday evening.

E4B is a Milton Keynes-based independent electricity retailer to SMEs, whichemployed 140 people.

Volatility in the energy market was the cause of the company’s demise, saidjoint administrator Stuart Maddison.

The company will be wound down but customers will not be affected.

'We will be working closely with OFGEM to ensure an orderly wind down of thecompany’s activities and would like to reassure E4B’s customers that theadministration will not affect their supply of electricity,' added Maddison.

Further reading:

Business queues up for 'intensivecare' units

Tom Aikens restaurants out ofadministration after MBO

Tenon seeks fund management go-ahead

AccountancyAge.com, Accountancy Age, Thursday 23 October 2008 at 06:59:00

Tenon is applying for FSA go-ahead for fund management to invest indistressed businesses with potential

Tenon is applyingfor FSA authorisation for fund management through Tenon Capital Management(TenonCap), aiming to invest in distressed businesses with turnaround potentialand turnovers between £5m and £30m, initially through the unregulated T-Fund.

Tenon will invest up to £1.5m in TenonCap and directors will contributeanother £250,000. The firm is looking to aggregate commitments of between £15mand £20m, , IFA online reports.

‘Having seen several economic downturns we are greatly aware of theopportunities they can produce’, TenonCap CEO Matthew Bowker said.

‘We believe we are well placed to identify the best opportunities and toachieve successful turnarounds and profitable exits for our investors.’

Further reading:

Readthe IFA online story

Sovereign funds target UK plc

David Jetuah , Accountancy Age, Thursday 23 October 2008 at 00:40:00

UK plcs are a takeover target for sovereign wealth funds warns Grant Thornton

Grant Thorntonsays that government intervention is making UK plcs a takeover target forsovereign wealth funds, which could put more FDs in the firing line.

Corporate finance experts at the firm have seen an upswing in man-dates fromoffshore outfits looking to make bargain acquisitions in the UK, especially fromfast developing nations such as India, with many of these firms seeing theextent of economic difficulties affecting the UK economy as offering a goldenopportunity to snap up bargains.

‘These companies and in some cases sovereign wealth funds want to get afoothold in the UK and are doing so forcefully,’ said David Brooks, corporatefinance partner. ‘If developing economies, particularly in Asia, hold upsignificantly better than the UK, expect to see a steady buy-up of UK companies.

‘There is certainly the chance of more government influenced M&Ainitiatives before the worst of the financial crisis is past,’ Brooks said.

In Q3, there were 192 purchases of UK companies by offshore interests for atotal of £32.7bn but while deal numbers were down from 280 in the previousquarter, values were up by £13.24bn.

M&A activity between UK companies has been at its lowest level since1993, but the government’s propping up of blue chip businesses has kept thevalue of deals high.

The government-driven takeover of HBOS by Lloyds TSB had a reported price tagof £12.54bn. Government involvement also helped boost the value of foreignpurchases in the UK. The sale of the British Energy Group to French firm EDF wasworth £9.17bn, according to GT.

‘The almost completely hands-off government approach applied for more thantwo decades on driving M&A deals has been replaced with significant marketintervention, albeit centred on the financial sector,’ Brooks added.

New owner will retain Coda brand

Rachael Singh, Accountancy Age, Thursday 23 October 2008 at 00:33:00

The acquisition of Codaby Unit 4Agresso will not result in a merger of the two software brands

While the two brands are under the same parent company and both provideaccountancy software, although in different capacities to a variety oforganisations, there are no plans to change the name of the company or brands,said a Coda representative at the latest Softworld event at London’s Olympia.

David Turner, group marketing director at Coda, said: ‘Unit 4 Agresso, theparent company, had a strategy to integrate other strong systems in the market.

‘To be profitable in the software business you need big bucks. We’recompeting against SAP & Oracle

so this helps us as now we have it,’

he added.

Londons in commission wrangle

Sarah Limbrick, Accountancy Age, Thursday 23 October 2008 at 00:28:00

Debt solutions firm heads for the High Court over disputed commission

Debt solutions firm Londons is headed for a High Court showdown withchartered accountants KS Tan & Co in a dispute over commissions.

Londons, who trade as IVAuk, claim insolvency practitioners KS Tan & Coowe around £385,000 in commission.

The companies entered an arrangement in January 2005, in which KS Tan &Co would pay commission of one third of gross revenue for individual voluntaryarrangements referrals from Londons, according to a High Court writ. Bothcompanies agreed to formalise their arrangement in May 2005, but negotiationsdid not end on a marketing agency agreement, the writ claims.

North west London based KS Tan & Co sent an email on 17 February thisyear terminating the agreement with Londons, alleging there had been a breach ofcontract; a claim denied by Londons.

Londons said the firm’s actions amounted to an anticipatory breach ofcontract, discharging it from its obligations, and is demanding dam-ages toinclude commissions due for individuals introduced, of £385,682.

A KS Tan & Co spokesman said it was seeking to make a counter claimagainst Londons, alleging breach of a marketing agreement.

Gordon Ramsay fined over late accounts

Judith Tydd, Accountancy Age, Thursday 23 October 2008 at 00:24:00

Celebrity chef Gordon Ramsay has racked up fines of £1,100 for being latewith his company accounts

According to a spokeswoman at Companies House, penalties incurred by GordonRamsay Holdings in failing to submit accounts from 2006 have reached the maximum£1,000 per year.

Accounts for the 2006 financial reporting year are almost 16 months overdue,with 30 June, 2007 listed as the due date. Company accounts for 2007 were due by30 June now almost four months in arrears, attracting a £100 fine on top offines for the previous year.

A spokesperson for Ramsay was unavailable to confirm reports that the companywould file accounts by 23 October.

Business queues up for 'intensive care' units

David Jetuah, Accountancy Age, Thursday 23 October 2008 at 00:14:00

Number of businesses being referred to 'intensive care unit' on the up asbanks are scrambling to meet the increased demand for help

A major bank has beefed up its ‘intensive care unit’ dealing with companiesat risk of going bust, as other banks say they are scrambling to meet increaseddemand for help.

Insolvency practitioners have said the number of people being referred to theunits has shot up in recent months andLloyds TSB toldAccountancy Age it had taken steps to cater for increased activity.

‘We have increased staff numbers in our business support services unit. If weare recruiting it’s clearly evidence of a very difficult time over recentmonths,’ said a Lloyds spokesman. ‘There has been an increase in the numbers ofbusinesses talking to us.’

One IP said that the banks had been ‘hiring like crazy’ at their turnarounddepartments, but other banks said only that the work was increasing.

‘There has been no real change in headcount, but there are more people comingto us,’ said an HSBCspokesman. ‘It’s at times like these when the relationship a business has withits bank is critical.’

The banks are currently trying to stave off the effects of a jittery market,but the number of comp-anies approaching the intensive care units can be takenas a barometer for conditions on the ground.

Some banks remained guarded about their activities. The banks usually splittheir services into business banking, dealing with operations that have aturnover of less than £1m, and corporate, which deals with business generatingmore than that amount.

HBOS saidit had not seen any ‘significant’ headcount increases within the high risk teamsof its corporate division, but companies coming to them for advice was ‘notsomething that we’d comment on and we don’t give out headcount figures for anyof our divisions,’ a spokesman said.

Barclays had notreplied at the time of going to press.

IPs are still bracing themselves for the full brunt of the credit crunch tohit smaller businesses at the coalface of the economy, which accounts for theclose eye being kept on activity levels at the intensive care units.

The renewal of banking facilities will be critical for companies in thecoming months as banks continue to take a tough stance on lending, according toone leading IP.

Despite IPs being busy, the expected spike in insolvencies has not yetmaterialised. ‘We’re close to Armageddon, but we’re not quite there yet,’ onesaid.

KPMG loses audit of US' largest mortgage lender

Gavin Hinks, Accountancy Age, Wednesday 22 October 2008 at 09:38:00

Bank of America backs PricewaterhouseCoopers for audit

KPMG has lost the audit of Countrywide, the US mortgage lender stricken bythe subprime crisis and at one time the country's largest lender.

New owner, Bank of America, has appointed PricewaterhouseCoopers to do theaudit, according to a Reuters report.

The news was revealed in a regulatory filing made in the US on Tuesday. Thefiling by Bank of America said KPMG’s audit reports of 2006 and 2007 included noadverse opinion on the lender’s books.

Prior to Bank of America’s acquisition Countrywide was the biggest mortgagelender in the US.

Tom Aikens restaurants out of administration after MBO

David Jetuah, Accountancy Age, Wednesday 22 October 2008 at 09:38:00

Michelin-starred chef forced to put eateries into administration beforemanagement buyout by private equity players

Tom Aikens, the celebrated chef, has been forced to put his two flagshiprestaurants into administration.

Suppliers, believed to be owed thousands of pounds, found out last weekendthat the two companies were in trouble,accordingto Bloomberg.

Tom's Kitchen and Tom Aikens are still trading, but are now in the hands ofprivate investors after a management buyout through an investment vehicle calledTA Holdco Ltd.

PwC, E&Y clinch lucrative TARP contracts

AccountancyAge.com, Accountancy Age, Wednesday 22 October 2008 at 08:30:00

US Treasury has recruited big four firms PwC and E&Y in its emergencybuyouts of toxic assets

TheUS treasury has announced it has recruited big four firmsPricewaterhouseCoopers (PwC) and Ernst & Young (E&Y) to help in theemergency buyouts of toxic assets from struggling financial institutions byproviding ‘accounting and internal controls services needed to administer thecomplex portfolio of troubled assets’, including whole loans and mortgage-backedsecurities.

The treasury chose the two firms from a pool of 12 and the initial orders forPwC and E&Y are worth $191,469.27 and $492,006.95, respectively.

The contracts were awarded as part of the government's new $700bn TroubledAsset Relief Program (TARP) to bail out financial companies lumbered with assetsdegraded by falling US home prices,AgenceFrance Presse reports.

The treasury said PwC would help the department establish a ‘sound internalcontrol posture’ and E&Y would provide general accounting support and expertaccounting advice.

US and international standard setters to work on joint credit crisis s

Gavin Hinks, Accountancy Age, Tuesday 21 October 2008 at 11:16:00

IASB and FASB to create new advisory board to work on financial instrumentsaccounting

A new high level advisory group is to be established by internationalstandard setters along with their counterparts in the US in a bid to find a longterm solution to accounting for financial instruments.

Accounting for securities and derivatives have become highly controversialduring the credit crunch as banks suffered ever increasing writes down to theiron the back of falling asset values.

Many have blamed fair value accounting for contributing to the financialcrisis.

The European Commission is today expected to discuss further proposals thatwould allow banks to reclassify all financial asset classes as ‘held forinvestment’, thus avoiding a valuation under fair value principles.

The joint working announcement and commitment to a long term solution toaccounting for financial instruments will be viewed as way of placating theEuropean Commission and heading off the drive towards a carve out.

Joint work would also help maintain the two board’s drive towards convergenceand US adoption of IFRS.

The IASB and FASB will use the new advisory group to counsel both standardsetters on a route forward. It will meet in public and will include externalchair persons and members. Public roundtables will also be staged in Europe, theUS and Asia.

IASB chairman Sir David Tweedie said: ‘The establishment of this high leveladvisory group and the holding of public roundtables should ensure that bothboards together reach common high-quality solutions that hep return confidenceto the marketplace.’

Robert Herz, chairman of the FASB, said: ‘We expect this new global group togenerate valuable short and longer-term input for both boards to consider.’

Laser Radio may be on the brink of administration

David Jetuah, Accountancy Age, Tuesday 21 October 2008 at 09:38:00

Directors understood to have applied to the courts to enter administration inthe wake of a compulsory wind-up petition being lodged by creditors

Local radio group Laser Broadcasting is preparing to enter administration.

The troubled company faced a compulsory wind-up petition from one of itscreditors last week and then applied to courts itself to be put intoadministration before the compulsory order could be heard, theGuardianreported.

The winding-up petition was brought last week by the Gateshead-based venturecapitalist Capital North East No1 Limited Partnership.

Laser Broadcasting, via subsidiaries, holds nine commercial radio licences.They are Bath FM, Brunel FM, three Sunshine-branded stations in Ludlow, Hereford& Worcester and Hereford/Monmouth, two Quay West stations in west Somersetand Bridgwater, 3TR in Warminster, and Fresh Radio in the Yorkshire Dales.

Laser's administration application will be heard in the high court in Leedsthis Friday.

Investors call on EC to drop more changes to fair value reporting

Gavin Hinks, Accountancy Age, Tuesday 21 October 2008 at 09:38:00

Corporate Reporting Users Forum calls on European Commission to dropproposals for further IAS39 carve-outs

A senior group of investors and analysts has written an open letter to theEuropean Commission insisting that there be no further carve-outs to thecontroversial accounting IAS39 during a meeting to be held in Brussels today.

The letter, published in the FT today, says: ‘Now especially, investors needcomparability and transparency, not further uncertainty and inconsistency.’

Signed, among others, by Nick Anderson, head of research at InsightInvestment and Peter Elwin, head of accounting and valuation research atCazenove, the names on the letter are all from the Corporate Reporting UsersForum (CRUF), a pan European grouping of investment analysts.

The Commission has already endorsed changed made to international standardsthat bring them into line with US GAAP. But the agenda at today’s meeting tabledmuch broader changes that would allow all classes of financials instrument to bereclassified and therefore duck the application of fair value accounting.

The FT letter says that CRUF believes ‘that further changes, which go beyondaligning IFRS with US GAAP, risk severely undermining the confidence users havein the accounts produced by European companies.’

Yesterday, the Investment Management Association released a statement sayingthe proposed changes could threaten transparency and comparability.

Last week JP Morgan released a paper signalling its disappointment with IASBchanges but also stating its objection to further reform of the standards.

Conservatives propose 1p cut to national insurance

Judith Tydd, Accountancy Age, Monday 20 October 2008 at 10:06:00

SME sector should be thrown a lifeline, Tory leader David Cameron says

National Insurance should be cut by 1p, the Tories have said, to give smallbusinesses a shot in the arm.

The move is designed to stymie the impacts of the credit crisis on smallbusiness.

According tobbc.com, thereduction should last six months and the scheme would apply to businesses withfour or less staff.

Cameron said SMEs would be 'going to the wall unless they get help', and the1p cut could save an estimated £600 per business �" costing the Treasury £225m.

He also said in preventing the economic downturn from spiraling into arecession, the plight of small businesses needs to be considered very carefully.

'We would like it if there was a magic wand. If we were like Sweden and had abudget surplus we could do much more,' he said.

Cameron is also calling for a six month VAT holiday for medium-sizedbusinesses.

Tire giant wheels in new CFO

Alex Hawkes, Accountancy Age, Monday 20 October 2008 at 09:51:00

Darren R. Wells named new CFO at Goodyear

Tire giant Goodyear has named Darren R. Wells as its new CFO.

Wells, 42, replaces W. Mark Schmitz, who is leaving to pursue otherinterests, the companysaid in a statement.

Schmitz, 57, has been CFO for 14 months.

Wells is a car industry veteran, having spent ten years at Ford, and mostrecently was one of the key leaders and architects of Goodyear's financialrestructuring.

'The innovative plans to restructure our balance sheet executed underDarren’s leadership served as the foundation of the company’s rebirth as astronger, more respected competitor in the tire industry,' chief executiveRobert J. Keegan said.

'As chief financial officer, Darren will use his outstanding business andfinancial skills and strong leadership capabilities to generate shareholdervalue.'

A native of Indianapolis, Wells earned his bachelor of arts degree fromDePauw University in Greencastle, Indiana, and his MBA in finance from IndianaUniversity.

He held positions of increasing importance in 10 years at Ford Motor Company,including assignments in Australia for Ford Credit and Ford InvestmentEnterprises.

Schmitz was previously with Tyco International’s Fire and Security segment asvice president and chief financial officer for four years prior to joiningGoodyear.

'We appreciate Mark’s contributions during a challenging period in ourindustry and in the global economy, and wish him well in the next phase of hiscareer,' Keegan said.

AIG brings in Herzog as CFO

David Jetuah, Accountancy Age, Monday 20 October 2008 at 09:28:00

Embattle insurer appoints comptroller David Herzog as its chief financialofficer in moves to address its capital structure and expenses regime

AIG has appointed comptroller David Herzog as its new chief financialofficer.

Herzog, the troubled insurer's comptroller, replaces Steven Bensinger.Bensinger was the insurer's acting CFO, but he has left the company to pursueother opportunities.

Herzog will play a central role in overseeing the insurer's plan to addressits capital structure and pay down the credit facility from the Federal ReserveBank of New York.

He will also work closely with Chief Administrative Officer Richard Booth inan enterprise-wide review of expenses and practices, thecompanysaid.

Herzog has been senior vice president and comptroller of AIG since June 2005.He joined American General Corp. in February 2000 and, following AIG'sacquisition of American General in 2001, was appointed Chief Operating Officerfor the combined domestic life insurance companies. He was elected AIG's VicePresident, Life Insurance in 2003 and was named Chief Financial Officer of AIG'sWorldwide Life Insurance operations in 2004.

Further reading:

AIGfaces probe for 'outrageous expenditure'

AIG brings in Herzog as CFO

David Jetuah, Accountancy Age, Monday 20 October 2008 at 09:28:00

Embattle insurer appoints comptroller David Herzog as its chief financialofficer in moves to address its capital structure and expenses regime

AIG has appointed comptroller David Herzog as its new chief financialofficer.

Herzog, the troubled insurer's comptroller, replaces Steven Bensinger.Bensinger was the insurer's acting CFO, but he has left the company to pursueother opportunities.

Herzog will play a central role in overseeing the insurer's plan to addressits capital structure and pay down the credit facility from the Federal ReserveBank of New York.

He will also work closely with Chief Administrative Officer Richard Booth inan enterprise-wide review of expenses and practices, thecompanysaid.

Further reading:

AIGfaces probe for 'outrageous expenditure'

French orders emergency audit of its banks

AccountancyAge.com, Accountancy Age, Monday 20 October 2008 at 08:42:00

The French government orders emergency audit of all French banks after Caissed’Epargne suffers huge trading loss

The French finance minister, Christine Lagarde, has ordered an emergencyaudit of all French banks after one of the country's biggest savings banks,Caissed'Epargne, suffered a €600m (£466.6m) loss in unauthorised equityderivatives trading.

A team of four or five traders were caught out, exceeding their limits in thepanic triggered by last week's stock market crash, by so-called ‘routine controlprocedures’. The positions were immediately closed and traders disciplined, theGuardian reports.

The incident has led to the resignation of Charles Milhaud, Caisse’schairman; Nicolas Mérindol, his chief executive officer, and Julien Carmona,finance director.

As the French banking commission started investigating the affair, Lagardevented her frustration, saying she was 'depressed' by this latest act ofunauthorised trading by a French bank.

Further reading:

Readthe Guardian story

France orders emergency audit of its banks

AccountancyAge.com, Accountancy Age, Monday 20 October 2008 at 08:42:00

The French government orders emergency audit of all French banks after Caissed’Epargne suffers huge trading loss

The incident has led to the resignation of Charles Milhaud, Caisse’schairman; Nicolas Mérindol, his chief executive officer, and Julien Carmona,finance director.

As the French banking commission started investigating the affair, Lagardevented her frustration, saying she was 'depressed' by this latest act ofunauthorised trading by a French bank.

Further reading:

Readthe Guardian story

It’s official �" UK in recession, E&Y reports

AccountancyAge.com, Accountancy Age, Monday 20 October 2008 at 07:59:00

Corporations have to prepare for bleak times ahead, according to the latest E&Y ITEM economic autumn forecast

Corporations and businesses have to brace themselves against the prospect ofa contracting economy over the next three quarters, according to anErnst& Young (E&Y) ITEM Club autumn forecast released today, which repotsthe UK economy is now in recession, following dramatic deterioration in the lastquarter.

The ITEM report forecasts the economy will not bottom out before the secondhalf of next year and expects only a weak recovery in 2010. It predicts the GDPis likely to drop by 1% next year �" the first year of negative growth since 1992and growth is forecast by only 1% in 2010.

‘We now have to face up to the reality of an economy that has been seriouslyweakened by recent dramatic events,’ Peter Spencer, Ernst & Young ITEM Clubchief economist, says. ‘The effects of the credit crisis are spreading out fromthe financial and housing sectors and impacting every part of our domesticeconomy.’

ITEM warns the supply of credit is likely to remain severely restricted andcorporate profitability will continue to suffer, triggering widespreadreductions in investment and employment. Business investment is alreadysubsiding and ITEM expects it to fall back by 5% next year.

It’s official �" UK in recession, E&Y reports

AccountancyAge.com, Accountancy Age, Monday 20 October 2008 at 07:59:00

Corporations have to prepare for bleak times ahead, according to the latest E&Y ITEM economic autumn forecast

E&Y touted as Landsbanki administrators

David Jetuah, Accountancy Age, Friday 17 October 2008 at 10:32:00

Speculation increases Ernst & Young will be handling the administrationof the UK assets of collapsed Icelandic bank

Ernst & Young may be close to winning the high-profile administration ofthe UK assets of Landsbanki, the troubled Icelandic bank.

The government approached veteran administrator Alan Bloom to see if he wouldstep in, according topressreports.

Bloom and three other administrators from E&Y are already helping thedirectors of Landsbanki subsidiary Heritable UK plc manage its loan book, whilelooking for a buyer for the remainder of the business.

E&Y is also handling operations at Kaupthing Singer & FriedlanderLimited, the UK arm of Icelandic bank Kaupthing.

On the issue of the Landsbanki administration, the firm declined to commenton press speculation.

E&Y touted as Landsbanki administrators

David Jetuah, Accountancy Age, Friday 17 October 2008 at 10:32:00

Speculation increases Ernst & Young will be handling the administrationof the UK assets of collapsed Icelandic bank

Ernst & Young may be close to winning the high-profile administration ofthe UK assets of Landsbanki, the troubled Icelandic bank.

The government approached veteran administrator Alan Bloom to see if he wouldstep in, according topressreports.

E&Y is also handling operations at Kaupthing Singer & FriedlanderLimited, the UK arm of Icelandic bank Kaupthing.

On the issue of the Landsbanki administration, the firm declined to commenton press speculation.

FSA chief says mark to market must be debated

Gavin Hinks, Accountancy Age, Friday 17 October 2008 at 08:41:00

Accounting rule an inherent part of reviewing capital requirements for banks,says Turner

Regulators must examine mark to market accounting as part of a fundamentaldebate on the setting of banks’ capital requirements, the chairman of theFinancial Services Authority has said.

Lord Turner told the Financial Times that the debate was required and thatalongside issues such as bonus structures, the transfer of risk and theregulation of liquidity and capital, mark to market accounting must beconsidered.

However, the interview did not elaborate on how a debate on mark to market,or fair value, accounting would be managed. Neither did it hint at whetherrecent steps taken by the International Accounting Standards Board, and endorsedby the European Commission’s Council of Ministers, to allow the reclassificationof some financial instruments so they are not subject to a fair valuecalculation were adequate.

If the FSA does undertake a review of mark to market it is likely to come atthe issue from the point of view of capital adequacy requirements for banks,quiet a different set of interests from those behind the work of the IASB insetting accounting standards.

The SEC announced yesterday that it was to stage round table discussions thismonth to explore the effects of mark to market accounting, whether it changesthe behaviour of users and whether it remains useful to investors andregulators.

There has been immense pressure in the US, UK and Europe to suspend mark tomarket amid claims that it has exacerbated the current financial crisis andunfairly undermined the balance sheets of financial institutions.

Investors and regulators have mostly stood by the rule.

FSA chief says mark to market must be debated

Gavin Hinks, Accountancy Age, Friday 17 October 2008 at 08:41:00

Accounting rule an inherent part of reviewing capital requirements for banks,says Turner

Regulators must examine mark to market accounting as part of a fundamentaldebate on the setting of banks’ capital requirements, the chairman of theFinancial Services Authority has said.

Investors and regulators have mostly stood by the rule.

Landsbanki savers in Guernsey unlikely to recoup deposits

AccountancyAge.com, Accountancy Age, Friday 17 October 2008 at 07:45:00

Savers with accounts in the Guernsey Landsbanki subsidiary are unlikely torecover all their money

Deloitte,administrators of the Guernsey subsidiary of Icelandic Landsbanki warned

yesterday more than 2000 savers of the bank were unlikely to recoup all their

money.

Depositors have been offered a preliminary pay-out worth just 30%. An initialsurvey of LandsbankiGuernsey’s assets and liabilities by Deloitte found only £41m of the £121mowed to depositors and others was available for distribution, the FinancialTimes reports.

The administrators said their ability to pay depositors in full had beenhampered by

the subsequent collapse of Heritable Bank, a UK subsidiary of Landsbanki.Heritable

held £36m of Landsbanki Guernsey assets.

Rick Garrard, one of the administrators, warned that, without a depositorprotection scheme in Guernsey, depositors were forced to rely on the governmentsof Guernsey, the UK and Iceland to compesate any shortfall, which he said 'isnot an obligation and cannot be assumed'.

Further reading:

Audit Commission admits to £10m Iceland deposits

E&Y takes over Heritable’s loan book

Readthe Financial Times story

Landsbanki savers in Guernsey unlikely to recoup deposits

AccountancyAge.com, Accountancy Age, Friday 17 October 2008 at 07:45:00

Savers with accounts in the Guernsey Landsbanki subsidiary are unlikely torecover all their money

Deloitte,administrators of the Guernsey subsidiary of Icelandic Landsbanki warned

yesterday more than 2000 savers of the bank were unlikely to recoup all their

money.

Further reading:

Audit Commission admits to £10m Iceland deposits

E&Y takes over Heritable’s loan book

Readthe Financial Times story

AIG faces probe for 'outrageous expenditure'

AccountancyAge.com, Accountancy Age, Friday 17 October 2008 at 07:27:00

AIG faces probe for 'unwarranted and outrageous expenditure after paying hugeexecutive bonuses

AmericanInternational Group, the US insurer rescued in a taxpayer-funded$85bn(£49bn) bailout last month, is facing an investigation for 'unwarranted andoutrageous expenditures' after the company paid huge executive bonuses and spent£50,000 on a UK shooting trip.

In a letter to AIG's board of directors, New York attorney general AndrewCuomo

demanded the company stop 'extravagant' expenditures and recover millions ofdollars in unreasonable payments, or face legal action, the EveningStandard reports.

'The party is over,' Cuomo said after discovering a $5m bonus and a $15mgolden parachute had been given to Martin Sullivan, the Essex-born former chiefexecutive, last March. 'No more hunting trips. No more luxury resorts. They arenot going to have the party and leave the hangover for the taxpayers.'

Cuomo has also demanded an accounting inspection of AIG's executiveompensation and benefits since January 2007. He said the government's financialrescue of AIG made the expenditures 'even more irresponsible'.

Further reading:

Ex AIG chief blames mark-to-market for losses

PwC settles AIG lawsuit

Readthe Evening Standard story

AIG faces probe for 'outrageous expenditure'

AccountancyAge.com, Accountancy Age, Friday 17 October 2008 at 07:27:00

AIG faces probe for 'unwarranted and outrageous expenditure after paying hugeexecutive bonuses

Further reading:

Ex AIG chief blames mark-to-market for losses

PwC settles AIG lawsuit

Readthe Evening Standard story

It's time to rewrite the 3 R's

Alex Hawkes, Accountancy Age, Thursday 16 October 2008 at 18:37:00

The body that represents recovery professionals is revamping its governance.But if you ask me, its board structure isn’t its biggest problem

Ask members of the public, and they’d struggle to tell you precisely why R3is called ‘R3’. We know, of course, that it stands for ‘Rescue, Recovery andRenewal’, the, um, well known three ‘R’s of the insolvency profession.

To the general public, the body probably sounds like a character from StarWars.

Maybe it’s not bothered, but while it’s thinking about its structure, comingup with a name that means something to the man on the Clapham Omnibus might beworth some thought.

The problem with R3 is that, if you write it in any context, not just in themedia, you’d have to add another sentence explaining what it is. Why not justhave a name that explains what it is?

Some might question too what the relevance of two of those ‘R’s is, as well.

Recovery I can understand, but Rescue? It isn’t a lifeboat association. Andrenewal? Sounds a little bit New Labour, doesn’t it?

R3 does do some good work, its warnings on debt management plans recentlybeing a good example of the impact it can have.

But just think how big that impact could be.

Alex Hawkes is the news editor of Accountancy Age

It's time to rewrite the 3 R's

Alex Hawkes, Accountancy Age, Thursday 16 October 2008 at 18:37:00

The body that represents recovery professionals is revamping its governance.But if you ask me, its board structure isn’t its biggest problem

To the general public, the body probably sounds like a character from StarWars.

Maybe it’s not bothered, but while it’s thinking about its structure, comingup with a name that means something to the man on the Clapham Omnibus might beworth some thought.

The problem with R3 is that, if you write it in any context, not just in themedia, you’d have to add another sentence explaining what it is. Why not justhave a name that explains what it is?

R3 does do some good work, its warnings on debt management plans recentlybeing a good example of the impact it can have.

But just think how big that impact could be.

Alex Hawkes is the news editor of Accountancy Age

It's time to rewrite the 3 R's

Alex Hawkes, Accountancy Age, Thursday 16 October 2008 at 18:37:00

The body that represents recovery professionals is revamping its governance.But if you ask me, its board structure isn’t its biggest problem

To the general public, the body probably sounds like a character from StarWars.

Maybe it’s not bothered, but while it’s thinking about its structure, comingup with a name that means something to the man on the Clapham Omnibus might beworth some thought.

The problem with R3 is that, if you write it in any context, not just in themedia, you’d have to add another sentence explaining what it is. Why not justhave a name that explains what it is?

R3 does do some good work, its warnings on debt management plans recentlybeing a good example of the impact it can have.

But just think how big that impact could be.

Alex Hawkes is the news editor of Accountancy Age

It's time to rewrite the 3 R's

Alex Hawkes, Accountancy Age, Thursday 16 October 2008 at 18:37:00

The body that represents recovery professionals is revamping its governance.But if you ask me, its board structure isn’t its biggest problem

To the general public, the body probably sounds like a character from StarWars.

Maybe it’s not bothered, but while it’s thinking about its structure, comingup with a name that means something to the man on the Clapham Omnibus might beworth some thought.

The problem with R3 is that, if you write it in any context, not just in themedia, you’d have to add another sentence explaining what it is. Why not justhave a name that explains what it is?

R3 does do some good work, its warnings on debt management plans recentlybeing a good example of the impact it can have.

But just think how big that impact could be.

Alex Hawkes is the news editor of Accountancy Age

Insider Business Club: mid-market outsourcing

Damian Wild, Accountancy Age, Thursday 16 October 2008 at 18:11:00

Whether it is to aid growth or cut costs, more businesses are turning tooutsourcing, according to our experts

Are mid-market companies embracing outsourcing and which finance servicesare being put out?

Mark Holland, partner, Baker Tilly and ICAEW IT faculty

I think it’s a trend that is growing. Mid-sized companies are seeing theopportunity now to benefit from the services, the efficiency gains, thereliability and the additional functionality that outsourcing can bring to themthat, perhaps, up until relatively recently, was only possible for their largercorporate colleagues.

There have been changes in the last few years in technology and in ways ofworking that mean those benefits are now far more accessible. Some businessesare taking up the opportunity, or at least looking at it.

Outsourcing has tended to be done more for positive reasons, i.e. growth anddevelopment, rather than purely as a cost-cutting exercise. I would beinterested to see whether, given the current environment, it continues to begrowth that is the key driver or whether cost cutting perhaps raises it.

With the commercial usage of the internet as it is now, it is possible forbusinesses and outsourcers to share the same information simultaneously whereas,in the past, outsourcing the finance function might have been a question ofbasically losing control over everything. You wouldn’t know anything until theset of reports hits your desk in a paper copy a week or two later.

Those days are over. Now what we are seeing is a collaborative approach, apartnership approach between the outsourced delivery company that is actuallydoing the final part of the finance function and the company that has outsourcedpart of that function.

The components that we are seeing outsourced are increasingly around some ofthe less value-added areas. For example, purchase ledger, reconciliation,preparation of management reports, KPI reports, that sort of thing. We tend notto see credit control being outsourced to such an extent because that istouching customers.

Are companies willing to outsource ‘core’ services?

Peter Simons, technical specialist, CIMA

I work with a forum of leading companies we call them enterprise-sizedcompanies and this has already happened in their area for some time now. WhenI talk to members about developments in the finance function and tell them thismay come down the line, they have been in denial.

But increasingly now there are anecdotes coming back from the audience insmaller mid-sized and even SME companies where they are saying: ‘Yes, this iswhat we are doing too.’ So it’s an exciting time for accountants.

People have no problem outsourcing their car fleet or outsourcing cateringthe canteen because they never saw that as being core. But what is interestingis that in the last few years, people have thought, well, maybe HR isn’t thatcore, IT isn’t that core and now they are saying that accounts are not thatcore.

That’s a shift because politically HR were probably weak at the board level,while IT are geeks nobody understands what they do anyway. But finance used toalways be at the fore as something that people had to have at the board tableand previously they would not contemplate outsourcing that.

How can you best manage an outsourced service?

Keith Wilson, commercial director, BaxterStorey

We are a provider of outsourcing services catering, reception services,etc. In our IT department we also outsource a lot of our services to supportcompanies. There is a variety of them, although we do have a central small hubthat manages those outsourced services.

I think that is key to make sure that you keep the control when you outsourcethe technical parts of a service.

It would probably be fair to say that it happened by accident, or happened byevolution. We have grown very rapidly. We have been going for seven years and wehave grown rapidly in that period of time.

It was therefore very difficult for our IT department to keep up with thatgrowth. So we were forced into making sure that we had best practice by goingout into the market.

I think there will be a drive to outsource in the current environment. Thebig issue that is facing us all is the whole issue of risk management and Ithink people will want to bring in experts in a particular field whatever itmaybe to manage the risk. Without doubt that will become a driver.

I think it will force organisations to start looking at what services do theydo themselves and what do they do externally.

Chaired by Damian Wild

Watch the events and sign up atwww.insiderbusinessclub.com

Insider Business Club: mid-market outsourcing

Damian Wild, Accountancy Age, Thursday 16 October 2008 at 18:11:00

Whether it is to aid growth or cut costs, more businesses are turning tooutsourcing, according to our experts

Are mid-market companies embracing outsourcing and which finance servicesare being put out?

Mark Holland, partner, Baker Tilly and ICAEW IT faculty

Are companies willing to outsource ‘core’ services?

Peter Simons, technical specialist, CIMA

How can you best manage an outsourced service?

Keith Wilson, commercial director, BaxterStorey

I think that is key to make sure that you keep the control when you outsourcethe technical parts of a service.

It would probably be fair to say that it happened by accident, or happened byevolution. We have grown very rapidly. We have been going for seven years and wehave grown rapidly in that period of time.

It was therefore very difficult for our IT department to keep up with thatgrowth. So we were forced into making sure that we had best practice by goingout into the market.

I think it will force organisations to start looking at what services do theydo themselves and what do they do externally.

Chaired by Damian Wild

Watch the events and sign up atwww.insiderbusinessclub.com

Insider Business Club: mid-market outsourcing

Damian Wild, Accountancy Age, Thursday 16 October 2008 at 18:11:00

Whether it is to aid growth or cut costs, more businesses are turning tooutsourcing, according to our experts

Are mid-market companies embracing outsourcing and which finance servicesare being put out?

Mark Holland, partner, Baker Tilly and ICAEW IT faculty

Are companies willing to outsource ‘core’ services?

Peter Simons, technical specialist, CIMA

How can you best manage an outsourced service?

Keith Wilson, commercial director, BaxterStorey

I think that is key to make sure that you keep the control when you outsourcethe technical parts of a service.

It would probably be fair to say that it happened by accident, or happened byevolution. We have grown very rapidly. We have been going for seven years and wehave grown rapidly in that period of time.

It was therefore very difficult for our IT department to keep up with thatgrowth. So we were forced into making sure that we had best practice by goingout into the market.

I think it will force organisations to start looking at what services do theydo themselves and what do they do externally.

Chaired by Damian Wild

Watch the events and sign up atwww.insiderbusinessclub.com

Insider Business Club: mid-market outsourcing

Damian Wild, Accountancy Age, Thursday 16 October 2008 at 18:11:00

Whether it is to aid growth or cut costs, more businesses are turning tooutsourcing, according to our experts

Are mid-market companies embracing outsourcing and which finance servicesare being put out?

Mark Holland, partner, Baker Tilly and ICAEW IT faculty

Are companies willing to outsource ‘core’ services?

Peter Simons, technical specialist, CIMA

How can you best manage an outsourced service?

Keith Wilson, commercial director, BaxterStorey

I think that is key to make sure that you keep the control when you outsourcethe technical parts of a service.

It would probably be fair to say that it happened by accident, or happened byevolution. We have grown very rapidly. We have been going for seven years and wehave grown rapidly in that period of time.

It was therefore very difficult for our IT department to keep up with thatgrowth. So we were forced into making sure that we had best practice by goingout into the market.

I think it will force organisations to start looking at what services do theydo themselves and what do they do externally.

Chaired by Damian Wild

Watch the events and sign up atwww.insiderbusinessclub.com

Profile: Steve Jones, FD of Rugby Estates

Judith Tydd, Accountancy Age, Thursday 16 October 2008 at 17:40:00

An inherent desire for steering a company’s finance strategy over nuts andbolts accounting has taken Rugby estates FD Steve Jones to the core of property investing

Steve Jones never entertained the prospect of being an accountant theprofession held little attraction for a man more concerned with dictating theoverarching financial direction of a business.

Even now, he sees his role as an accountant as secondary to that of financedirector, with accountancy merely serving as a tool used in crafting a moretactical path.

For Jones, it’s about information management and comprehending numbers interms of the here and now, but also how he prepares a business for the future.

‘I’ve always been more focused on playing an important role in the running ofa business. I’ve never liked numbers for numbers sake it’s not just whereyou’ve been but also where you’re going,’ he says.

After university he took on a role at BTR, the forerunner to Invensys, amanufacturing company producing everything from oil rigs to conveyor belts.

His two year tenure was in a financial analyst role, but his departure cameon the assertion that ‘the company’s view of cost control failed to translate tomy view of salary’.

Not content with settling for a career as a ‘factory accountant’, and cravingdiversity and responsibility, an offer at Wiggins Group plc facilitated both ofthese.

He quickly learned the basic infrastructure and accounting function to be a‘complete shambles’, but concedes the opportunity to restore some financialhealth to the business was a task to be savoured. ‘I got down to the grunt workof actually building financial reporting teams and structure and policies. I’dliterally be sitting at home on a Sunday night writing up the cash box. It washands on…I saw it as something I could get my teeth into,’ he says.

After four years with Wiggins, Jones left as group financial controller afterhe struggled to accept where the group was heading strategically.

Enter Rugby Securities, then part of a larger parent called HillsdownHoldings plc and member of the FTSE 100, way back in 1986. Rugby Securities wasa property dealing subsidiary run autonomously to Hillsdown, and as Jonesrecalls, the independence allowed him scope to develop

a finance function on his own terms.

‘As long as I sent my numbers in each month that was about it…they justprovided the finance,’ he says.

Rugby Securities employed about a dozen people at the start of Jones’appointment, turning over between £1m and £2m a year profit. Soon it gatheredpace amid the late 1980s boom, taking on close to 30 employees and recordingannual profits in excess of £20m.

His Wiggins term inadvertently acted as an overture to what unfolded in therecession of the early 1990s and as co-founding director of Rugby SecuritiesLimited - now justRugby Estates -Jones is ostensibly well-placed to cope with the current crisis.

According to Jones, the overarching philosophy adopted by Rugby Estates liesin purchasing property where they can add value, and despite being outbid bymore risk-laden buyers on a number of occasions, the business has maintained itsapproach to the market, largely because he’s set to lose more than most. ‘It’sour own money tied up in the business,’ he says.

Having lived through the recession of the early 90s, he’s confident he cannavigate the business through the chaos but is reticent on how much furtherthere is to fall. ‘We’re actually in a strong position, although there are notransactions . . . as we are in the middle of peak uncertainty,’ explains Jones.

While in the midst of the downturn and ‘peak uncertainty’, he’s afforded thetime to look at opportunities beyond the storm, which he says, lies in thirdparty businesses.

Corporate value in the property sector has fallen significantly, about 20% incommercial property from the peak of 2007.

Business buffer

After years of debt-fuelled buying by investors, one consolation for Jonesand Co is the fact the business was not geared too highly and they instead builtit on plain, vanilla-type deals at approximately 70% of a property’s value. Inpart, its prudence provides a buffer to the business in stymieing furtherimpacts from the unprecedented fallout in global markets.

‘There was too much lending going on, on too high terms.’

As an investment vehicle, Rugby Estates plc was established by David Tye andDavid Wilson, along with Jones, and was designed as an offshoot to RugbySecurities.

In 1994 they floated on the London Stock Exchange; a time when interest ratesdropped to 8% and property yields followed suit.

The trio used the prevailing boom period as an opportunity to shy away fromthe parent company and emerge as a fully-independent public company. ‘It was anatural consequence. In the early 1990s Hillsdown had a lot of demergers andthere wasn’t an obvious logical place for us,’ he says.

Readily conceding transactions are at a premium for most players in thespace, Jones won’t be drawn on the degree of downsizing, if any, that hasoccurred in the past 12 months.

The commitment to a property development transaction is the ultimate judgmentin a business of this nature, and companies across the board are settling forconservatism and reining in risk, however minor.

The structure of the business’ property investment vehicles isthree-dimensional, including the ING Covent Garden Limited Partnership,established in 2002 and comprising a £200m portfolio, and OTwelve EstatesLimited, which was set up in 2006.

The latter vehicle has now built up a £250m portfolio of properties in theeast of London which are set to benefit from infrastructure improvements in thelead up to the 2012 London Olympic Games.

Soon after London won the bid, Jones and the team set upon investing inincome-developing East London property development.

The third and final vehicle is the Rugby Estates Investment, built on theconcept of a Real Estate Investment Trust which provides favourable taxtreatment to the investor.

Rugby Estates buys private companies which, says Jones, come with a ‘readymade exit’, and have recorded three REIT acquisitions since the UK governmenteffectively adopted the regime last year.

While the likelihood of generating such a deal now is slim, Jones isconfident the concept is a potentially lucrative option and is keen to revisitprospective sales once the market lifts.

Core to securing a REIT deal is sourcing companies of interest, and he’susing this cooling off period to locate and contact suitable prospects. Leadsare often generated by legal firms, property surveyors and contacts within theaccountancy profession.

Transaction might not take place right now, but good contacts could securedeals when the market picks up.

‘We need to meet more people…now is not the time [for deals], but maybe inone or two years...’

The REIT state of play

Rugby Estates plc has joined a growing list of companies to adopt REIT statusas a viable investment vehicle.

While the concept launched in the US in 1970, it took the much longer for theUK government to be convinced of its merits.

After decades of lobbying, UK-based businesses have only been able to takeadvantage of REITs since becoming effective in 2007, when the governmentrecognised they could generate tax from this type of vehicle. It was enacted inthe Finance Act of 2006.

There’s an upfront tax payment on the behalf of the investor �" 2% of thevalue of a property goes into the REIT regime. Historically, capital gains taxwould be extinguished and the Treasury wouldn’t see any of the tax until theproperty sold. Because the regime was legislated at the peak of the market, thegovernment is thought to have gained substantially from its offering.

UK REITs are required to distribute 90% of their income and can be classifiedas equity, mortgage or hybrid. They also have the capacity to be publicly orprivately held.

More recently, Enterprise Inns has reportedly deferred adopting REIT statusbecause of unforgiving economic conditions. The pub owner’s banks have agreed inprincipal to fund the REIT conversion. It’s believed to be a syndicate of 10 to12 institutions remaining largely unaffected by the credit crunch.