There's money to lend - but reality bites

- Last updated on GMT

Related tags: Uk economy, Time, Term, Money

Six months is a long time these days in whatever sector of the UK economy you happen to work. It's certainly not just the pub, bar and restaurant...

Six months is a long time these days in whatever sector of the UK economy you happen to work. It's certainly not just the pub, bar and restaurant sector that is having a tough time of things.

Talk to any retailer, manufacturer or importer and if you have the time, energy and patience to listen you will hear a familiar tale of woe. Talk to my fiancée, herself a turnaround director for a major bank, and she will tell the same story - falling sales, rising costs, disenchanted and shrinking labour force, too much debt and covenant breaches.

All rather depressing really and with no solution evident for the foreseeable future, 2009 and the first half of 2010 are going to be rather painful.

We have seen many corporate failures in the pub sector in recent months and I am sure there are more to come. Banks say they are lending but that's not what I am seeing. Sure, the front line sales staff are still targeted to "do deals" and to bring in new business because that is what banks do - or did.

But getting the deal sanctioned by a credit manager is the difficulty. Believe me, when I worked in corporate banking in the good old days, getting a deal sanctioned was hard enough as most credit managers' glasses were half empty and some wouldn't even pour water into the glass! I suspect there are no glasses around now…

The banks I speak to tell me they have money to lend, while the government tells us that it has told the financial institutions to lend through their "quantative easing" policies and issuing of new money.

The fact remains, though, that very little is being lent to this sector at present. Most banks have always regarded the leisure sector as risky, now it is distinctly off limits for many lenders. Without the support of a bank and a readily available flow of credit, it is almost impossible for any industry to survive beyond the short term.

This is a real shame as there are some great opportunities out there for people with cash or available undrawn credit lines.

Punch Taverns continues to sell off "golden bricks" at eight times EBITDA (earnings before interest, tax, depreciation and amortisation) and prices are definitely falling as operators are forced to sell to relieve operational and cashflow pressures or to stave off administration.

Some private equity houses are now seeing the opportunity and looking to back quality operators, which must be good news. The regional brewers seem to be using their cash reserves - notably Fuller's in London and Kent's Shepherd Neame - to buy lifetime opportunities while others, namely Greene King, are seeking new shareholder cash to pay down debt and to make acquisitions.

One hopes that the banks will soon realise that the industry is not broken, that there are good operators out there who should be backed short, medium and long term. Perhaps then we can start to move forward with a little confidence.

The Met Office recently announced its long range weather forecast for the summer. We are promised above average temperatures and sunshine, and below average rainfall. At last, a real ray of sunshine in an otherwise gloomy economy. Fingers crossed and let's hope their predictions will be more accurate than those of Messrs Brown and Darling.

Geoff Newton is managing director of GN Solutions Ltd

Related topics: Other operators

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