RISKROUND-UP 30th June 2016

INTRODUCTIONMost of the credit insurers who offer export and global trade credit insurance have their own teams of Economists carrying out research and publishing articles, helping Brokers and Clients understand the risk outlook of the economies around the world. As Brokers for the whole trade credit insurance market, UK Credit are in a unique position to have access to all this information and so this Risk Round-Up is designed to bring together the key ideas and information in one document. If you are interested in the greater depth of the original articles from which this information is taken, please contact your UK Credit Broker (or call 0845 073 8630) and they will be able to provide this.

UNITED KINGDOM: WHAT BREXIT MEANS FOR BUSINESSIn our April Edition of the UK Credit Risk Round Up, we mentioned a publication released by business insurer QBE called “What Brexit means for business”. Following the outcome of the referendum on 23rd June, we would like to remind you that this report is still available so please do not hesitate to contact your Broker or call us on 0845 073 8630 to request a copy. The report looks at the likely scenarios of a British exit and provides guidelines to help businesses plan for this eventuality. It also covers the impacts on UK businesses including taxation implications, accounting and business incorporation requirements and implications for business costs.

NORTHERN EUROPE: IMPROVEMENTS IN INSOLVENCY FIGURES EXCEPT FOR DENMARKCoface have this month released a panorama discussing business insolvencies in Northern Europe, focussing in particular on Germany, Netherlands, Sweden and Denmark. The overall message is that the figures for business insolvencies for 2015 improved in the region, owing in part to lower oil prices and the ECB’s expansionary monetary policy. In terms of sectors, insolvencies were still fairly regular in the Trade, Transport, Construction and Accommodation sectors, but failures in Manufacturing had decreased. This trend should continue in 2016 with the strongest decline in insolvencies expected in Netherlands (-11.1%), Sweden (-8%) and Germany (-2.5%). This trend can also be seen in other European countries such as Spain (-22%), Italy (-5%) and France (-3.2%). Denmark, however, show a contrasting outlook where insolvencies rose by 83% in the first four months of 2016. The increase in Danish insolvencies can be seen in all sub-sectors however this relates mainly to non-VAT registered businesses and businesses with a turnover of less than 1 million Danish Kroner. Whilst the number of insolvencies is expected to relax as 2016 continues, Coface predict an overall increase of 64% for the year. The biggest risks relate to Retail, Agriculture, Wholesale Trade and sub-sectors for services. For the Northern Europe Region as a whole, Coface estimate a slight drop in growth momentum with a forecast growth figure of 1.7% for 2016, from 2% in 2015. Continued improvements in insolvencies are expected with the exception of Denmark.

Source: Coface Panorama “Business Insolvencies in Northern Europe: Slower Decrease in 2016” June 2016.

UNITED KINGDOM: RETAIL SECTOR FOCUSA recent review of the retail sector by Derryck Blackman, Risk Underwriter at Credit Insurance Underwriters Nexus

UK Credit Insurance Specialists Ltd

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DISCLAIMER: This information is published by UK Credit Insurance Specialists Ltd for information purposes only and is not intended to provide any particular advice or commercial gain. The information contained has been taken from reliable sources as referenced, and UK Credit will not be held accountable for any errors or omissions, or results obtained from its use. Copyright UK Credit Insurance Specialists Ltd 2016.

CIFS, discusses some of the difficulties facing the sector and changes between January and April 2016. The figures from January were reasonably positive with an increase in consumer confidence, retail footfall growth of 1.4% from the previous year and the national town centre vacancy rate was at its lowest since July 2011. However by April 2016 the consumer sentiment indicator was at its weakest for 15 months and the number of shoppers visiting retail centres fell again. In terms of retail sub-sectors, department stores had a difficult few months with both BHS and Austin Reed failing in the same week with a potential 12,000 total job loss. Electrical stores such as Dixons Carphone, however, saw a boost in like-for-like sales helped by price-matching and spring sale events. Fashion remains to be most at risk with M&S’s share of the clothing market contracting for the last 17 consecutive quarters and the likes of Next publishing disappointing results blamed on the mild winter weather. Overall the statistics back up the notion that shopping habits are fundamentally changing, and a popular opinion among commentators is that the UK High Street is in terminal decline. Derryck summarises that for retailers to survive they must compete on price or offer a real in store experience. However with no further increases in footfall forecast, further retail failures in 2016 are inevitable.

Source: Nexus CIFS News “Retail Sector Review by Derryck Blackman – Risk Underwriter at Nexus CIFS” 10th June 2016.

UKRAINE: SLIGHT RECOVERY ALLOWS CREDIT INSURERS TO RESUME POLITICAL RISK COVERAGEThe Eastern region of Ukraine was hard hit by the conflict in 2014-15 resulting in a sharp GDP contraction, substantial depreciation of the hryvnia and restrictions on foreign exchange. The situation has improved since then, with both foreign exchange and the exchange rate stabilising and expectations that GDP will be positive this year according to Credit Insurance Underwriters, Credendo Group. Following the resignation of Prime Minister Yatsenyuk in April 2016, a new government has been formed and is led by Volodymyr Groysman, former speaker of parliament and member of the Petro Poroshenko Bloc party. The key task of the new government is to implement the critical reforms required by the IMF who stressed in May 2016 that “steadfast implementation of structural

and institutional reforms is now critical to turn the recent recovery into strong and sustainable growth, with unwavering determination in the fight against corruption emerging as a litmus test for the government’s ability to retain broad domestic and international support for its policies.” The government have since adopted – in June 2016 – legislation aimed at tackling corruption in the judicial system, which has led to the signature of a USD $1bn loan guarantee by the US. The improvement in liquidity means that Credendo Group have resumed political risk cover for short term transactions. However, the difficult business environment combined with limited access to credit, elevated lending rates and still weak hryvnia, sees Credendo Group continue to rate Ukraine as the highest possible commercial risk.

Source

Credendo Group “Ukraine Country Risk Assessment” June 2016

OW BUNKER RULING: EFFECT ON CREDIT INSURANCE AND FUNDINGThe insolvency of OW Bunkering, then the largest supplier of marine fuel, shook the credit insurance industry in 2014. Debtors of OWB were concerned that both the lenders and the actual suppliers of the fuel oil would seek payment and PST Energy argued in court that they did not have to pay under their contract as OWB had not paid for the fuel (Sale of Goods Act 1979). The UK Supreme Court found in favour of OWB, upholding that the contract was not about the sale, but about the supply of fuel for the immediate use of the ship-owner. The trade finance industry has welcomed this ruling which confirms the validity of the common practise of buying a commodity on long payment terms and selling on shorter terms. While a remote risk of double payment theoretically exists, there have been no reported cases and ship-owners will now be obliged to settle their debts with OWB to the advantage of lenders and trade credit insurers.

Source: GTR: Global Trade Review “OW Bunker ruling “good news for trade finance” http://www.gtreview.com/news/global 18.05.16 By Sofia Lotto Persio