This week it has become clearer that national industry leader, UK coal, is close to collapse. What could this mean for the business acquisition industry and what can we all learn from the UK Coal situation?
Financial news sources are reporting this week that UK coal is appealing to the government for a line of support. This support looks set to be the only thing that would prevent the collapse of the coal industry leader and the loss of 2,000 jobs for the British economy. UK coal looks to have been in dire straits for a while.
UK Coal has suggested that the strong pound and cheaper imports have impacted their bottom line and have been doing so for some time. This follows the fact that coal contracts are typically priced in dollars. Shale gas recently mined in the US has shifted US coal to the UK market, which has driven prices down across the entire UK coal market.
The problem for UK coal first reared its ugly head last year, however it was then saved. Originally there was a proposal on the table for Hargreaves Services to buy UK coal for £20 million. It was however, turned down by administrators, in place of the eventual plan that was enacted to save the coal provider. This plan involved a rescue operation by the UK pension fund, which acts to protect employee pensions should a company breach insolvency.
So it was rescued at the time, but the unfavourable economic climate, amongst other things, has once again led the company to the brink of insolvency. Whether the government does step in or not, the country’s only other large scale domestic coal miner, Hargreaves Services, has been reported to be in talks to invest in UK Coal.
Parties involved are keeping fairly tight lipped about what may happen, however UK Coal have gone on record as saying that: “Talks are taking place between the government and a range of stakeholders. Things are looking positive and we hope to have a resolution within weeks rather than months.”
What could it mean for the business acquisition industry? It means that if you have a company that deals with the energy sector, then you could be affected by an eventual collapse of one of the country’s largest providers of coal in one way or another. Prepare yourself for this so that if you are looking to sell right now, it doesn’t unexpectedly affect your ability to attract a buyer.
At RTA Business we also reckon that it teaches people a more general lesson about how to grow your business. Always keep track of and respond to market activity for your sector. UK Coal clearly couldn’t craft an effective response and it’s led them to the brink of collapse.
At RTA Business, we know that one of the best ways to attract a potential buyer to your business is to strengthen the profitability of said business. This often requires expansion. However, recent news from online fashion retailer Asos reminds us that expansion is a balancing act.
The online fashion service has announced and undertaken a whole host of expansion plans that are designed to increase the profitability of the Asos brand. This is a common business principle; in order to generate new revenue you have to find new avenues where that revenue is available, hence expansion.
However at the time of writing, shares at Asos were down 8%. The fashion retailer had already announced that expansion plans were likely to affect profitability in the short term, and this announcement drove down share prices.
Specifically, Asos announced that it has plans to spend £68 million on expansion this year alone; this was a revision from the £55 million figure it had previously quoted. These funds are going to increase warehouse space and overhaul IT systems that are integral to the Asos business model.
Furthermore, the brand illustrated how the expansion plans would increase profitability in the long term, stating that these measures would generate an extra £2.5 billion in sales capacity per year. Again, this is a revised figure; the amount quoted previously stood at £1.5 billion. However due to expansion costs, they released sales figures that were lower than forecasts.
Founder and chief executive Nick Robertson was quoted by major news sources on what these changes will mean for Asos in the long term. Robertson said that: “It has been an exceptionally busy period of activity at Asos, with continued growth and accelerated investment.”
Conlumio retail analyst David Alexander expanded on the point, highlighting what the long term effect of expansion plans at Asos would mean. Alexander said that: “A minor loss of momentum should not detract from an upward trajectory which has seen the fashion retail powerhouse post stratospheric numbers in recent times.”
At RTA Business, this reminds us that expansion is a balancing act. It’s always wise to expand to attract new buyers, but it could affect your profitability. This is why timing is everything in business expansion. You need to choose the right time, so that in the long term the expansion will benefit your bottom line.