Competition and Markets Authority publishes new guidance on rail franchise award methodology

March 31, 2018

On 15 March 2018 the CMA published two new documents designed to provide up-to-date guidance to all companies bidding for rail franchises in the UK. The guidance is a welcome update to the CMA’s “Q&As on Rail Franchises” document, which was last updated in April 2014.

The guidance is split into a short guide covering common queries about the process and a technical guide, which deals with the methodology used by the CMA in assessing whether the award of any rail franchise could give rise to competition concerns.

Overview of the procedure

The CMA’s statutory duty to review the award of rail franchises (under the Enterprise Act 2002) means that all bidders (not just the eventual franchisee) are encouraged to enter into pre-notification discussions with the CMA shortly after bids have been submitted. This allows the CMA to complete as much of its research as possible before it is required to enter into a formal merger investigation with the winning bidder.

Key elements of the March 2018 guidance

The March 2018 guidance focuses on the scope of the franchise being awarded and any potential overlaps in service provision that its award may cause. This is assessed by the CMA with reference to overlap of service between a bidder’s already existing rail or bus operations with the proposed rail operations franchise. It also provides some useful guidance on how bidders should engage with the CMA once their bid has been submitted.

The key points to note from the CMA’s guidance are:

1. Engagement

  • The CMA encourages bidders to engage with its information-gathering requirements as soon as possible after submitting their bid.
  • Bidders should allow sufficient time to gather the data and present it in a form that will allow the CMA to easily assess how filters have been applied to it.

2. Theories of harm

  • The theories of harm that the CMA will investigate will depend on the scope of the franchise being awarded.
  • For example, in some cases the winning bidder may operate other rail or bus franchises in the same area as the franchise being awarded, which could have the effect of reducing the number of independent transport operators, rail or otherwise.

3. Market definition

  • When considering the markets where a rail franchise award may have an impact, the CMA will consider other route options available to customers, the cost of the journey, frequency and waiting times, and any time spent travelling to and from the journey’s starting point.
  • The CMA considers that high levels of switching indicate close substitutability and a strong competitive constraint.

These guidelines are a welcome clarification of the CMA’s likely requirements in the context of a rail franchise tender process. Their publication re-affirms the CMA’s desire to streamline its process as far as possible in order to have any investigation completed before the franchise is put into operation.

It is therefore worth noting what will and will not be taken into account by the CMA – and the evidence that is likely to be persuasive in support of any arguments made by the winning bidder. With early CMA engagement key to the process, it will be beneficial to have these documents to hand well in advance of submitting your rail franchise tender.

It will also be interesting to note how regulators and rail operators factor greater open-access competition into future franchise bids, particularly given the ORR’s recently stated support for plans to expand opportunities for open-access operators on key intercity routes.

Source: Lexology

Franchising sector under the microscope (again)

March 31, 2018

On 20 March 2018, the Senate voted in favour of establishing an inquiry into the franchising sector. This latest inquiry follows significant media coverage of allegations of franchisee exploitation against high profile franchisors, including Domino’s and Retail Food Group, who operate brands including Gloria Jeans, Brumby’s, Donut King and Michel’s Patisserie.

The inquiry will be held by the Parliamentary Joint Committee on Corporations and Financial Services and the report is due by 30 September 2018. The inquiry will cover the operation and effectiveness of the Franchising Code of Conduct (the Code), including the adequacy of dispute resolution and termination provisions, as well as the imposition of trading restraints on former franchisees. It will also evaluate how well the Code ensures full disclosure to franchisees amid transparency criticisms of the sector.

Given this announcement, we thought it was timely to summarise the number of inquiries into the franchising sector over the last few years and their findings, as this may provide some insight into what we can expect from this latest inquiry.

2006 Inquiry

Mr Graeme Matthews led the review of the operation of the disclosure provisions of the Code in 2006. The Matthews review was the subject of criticism because its terms of reference were confined only to the disclosure provisions of the Code.

Following the 2006 inquiry, a range of changes to the disclosure requirements under the Code were implemented in 2008, including:

  • a requirement on franchisors to include the following information in disclosure documents;
    • who provides rebates and financial benefits to the franchisor
    • details of the expenses of marketing and other operative funds
    • the last known particulars of name(s) and contact details of each ex-franchisee will be disclosed, unless the ex-franchisee requests that it be withheld
    • the business experience of all ‘officers’ of the franchisor
  • prohibition on franchisors inhibiting prospective franchisees from communicating with each other or existing franchisees
  • general waivers (i.e. broad disclaimers), regarding prior written or verbal representations, were prohibited in franchise agreements
  • the details and history of the territory or site to be franchised must be provided together with the disclosure document
  • certain disclosure timeframes were reduced from 60 days to 14 days.

2008 Inquiry

In 2008, the Parliamentary Joint Committee on Corporations and Financial Services conducted an inquiry into the Code and related matters with the aim of raising the standard of conduct in franchising.

In response to this inquiry, the Government amended the Code again in 2010. These changes included:

  • a requirement to include warnings in disclosure documents
  • a requirement to include additional information in disclosure documents, such as details of: recurring or isolated payments; whether a franchisor has unilaterally changed a franchise agreement; and what happens at the end of the franchise term
  • obligations on franchisors to notify franchisees whether or not they intend to renew the franchise agreement or enter into a new franchise agreement
  • expansion of clauses dealing with the conduct of parties during mediation.

Alain Wein report

In 2013, Alan Wein commenced an independent review of the Code. The review looked at the 2008 and 2010 amendments to the Code and resulted in the development of the new 2015 Franchising Code of Conduct.

Some of the more significant changes made to the Code in 2015 following the Alan Wein report, included:

  • amendments to the franchisor’s disclosure requirements (e.g. obligation to provide information statement)
  • the introduction of an obligation of good faith
  • changes to provisions regarding marketing and advertisement fees
  • restrictions on enforceability of restraint of trade clauses
  • amendments to penalties and infringement notices
  • restrictions on franchisor’s requesting significant capital expenditure

In addition to the above inquiries, there have also been state based inquiries in the franchising sector in South Australia and Western Australia.

So what can we expect now?

Given the current environment, we expect that a significant focus of the inquiry’s recommendations will be around improving disclosure to franchisees. We may see recommendations from previous inquiries, which were rejected by the government, put forward again, such as mandatory registration of franchisors and lodgement of disclosure documents. We expect that the inquiry will be focused on a few key issues contributing to current franchisee complaints, including the level of supplier rebates, whether franchisors should take greater responsibility for the success of franchisees, the provision of clear, current financial information for franchise operations and end of term arrangements. We will have to wait and see whether this inquiry continues the approach of adopting smaller, incremental changes to the Code or if it will recommend a significant overhaul of the regulation of the sector.

Source: Lexology

Brexit, one year to go: Time is running out for Theresa May to get a deal

March 30, 2018
  • It has been exactly one year since Theresa May triggered Article 50 and kick-started the Brexit process.
  • Notable progress has been made on several key issues, but more notable is the number and scale of the problems still to be resolved.
  • Business Insider’s Brexit timeline shows the already-tight two year schedule to negotiate the broad outline of a deal has become even tighter after a year of delays and fudged commitments.

LONDON — It has been exactly one year since Theresa May triggered Article 50 and kick-started the Brexit process and now only one year remains until Britain is due to leave.

Notable progress has been made on several key issues. Negotiators in December thrashed out the terms of Britain’s separation from the EU — including the contentious issue of a £39 billion divorce bill — and in March this year they agreed the outline of a transition phase which will prevent Britain from crashing out of the EU without a deal.

However, many of the major obstacles to a smooth Brexit remain. With just a year to go until Brexit, May’s government have yet to fully explain how it will fulfil its promise to:

  • Avoid a hard Irish border
  • Secure a tariff-free “customs partnership” with the EU that isn’t the customs union
  • Make up for the damage caused to financial services by the loss of passporting
  • Register 3.7 million European nationals in the space of two years
  • Arrange a trade deal with a hostile Trump administration

May and her colleagues insist that solutions to all of these issues can be found in the next 12 months. But, as Business Insider’s Brexit timeline shows, the already-tight two year schedule to negotiate the broad outline of a deal has become even tighter after a year of delays and fudged commitments.

Source: Business Insider UK

Franchised dealers see 19% fall in vehicles for servicing

March 30, 2018

UK franchised dealers saw a significant year-on-year decline in aftersales business in 2017, according to data from electronic vehicle health check provider autoVHC.

The company, which sampled 500 UK dealers, found that over the 12 month period the average dealer saw 3,320 vehicles presented at its service department, a 19% drop from the 4,080 vehicles seen during the course of 2016.

It said the fall in aftersales activity combined with a tail off in new car sales was likely to put further pressure on dealers.

autoVHC said dealers on its books were not just seeing fewer cars but they were also losing out by selling just 53% of emergency ‘red’ work identified during the service process.

Red work is identified as faults that if not addressed pose a serious safety risk and in many cases will mean the owner will be breaking the law if they continue to drive the vehicle.

The data revealed the average UK dealer failed to sell £87,600 worth of urgently required work over the twelve-month period.

Across the sample group this equated to £43.8m worth of lost sales, meaning a total lost sales figure of £429m across the UK’s 4,900-strong franchised dealer network.

Chris Saunders, business Unit director at autoVHC, said: “This continued trend of missed sales opportunities is worrying, particularly as many dealerships are now relying on aftersales revenue to offset any losses associated with the recent dip in new car sales. Clearly, there are failings in the way technicians are communicating with motorists, and these need to be addressed as a priority.

“Aside from missing out on millions in lost earnings, failure to convert such a large proportion of Red work also raises serious concerns over customer safety. Motorists are effectively being allowed to drive away from the forecourt in vehicles that may pose a risk to their lives and those of other road users.

“Service departments must focus on improving sales skills if they are to maximise revenues, safeguard future business and protect their customers.”

Source: Motor Trader

Property management franchise firm signs up two London franchisees

March 29, 2018

Property management franchise scheme SDL Property Partners has signed up two new franchisees.

The scheme, operated by SDL Property Management, which also has its own lettings and surveying business, has signed up Sam Kamara for the Croydon area and Suleman Ghauri to manage his own brand in west London.

Franchisees can earn 70% of management fees and are given back-office and business support as well as help with accounts, compliance, marketing and building a website.

Kamara, who has worked in the property industry for 14 years, said: “I am excited about what this unique opportunity has to offer and to have the chance to work in a niche area which is currently undergoing significant regeneration.

Related: Property and Estate Agent Franchises UK – What Buying an Estate Agency Franchise Means for UK Franchisees

“I hope to make a meaningful contribution to the local area and to enhance the property management service in Croydon.”

Fellow new franchisee Ghauri already works with SDL as a surveyor.

It comes after the SDL Property Group announced it will aim to raise more than £100,000 this year for its partner charity, The Donna Louise, which provides palliative care services and support to children, young people and their families.

One of the activities will see participants take part in the SDL Tour: The Three Peaks in April. This will see teams travel through England, Wales and Scotland via car, completing five trails, including a mountain climb, in order to win points and be crowned overall winner.

Source: Property Industry Eye

Falling franchise earnings trigger emergency support

March 29, 2018

THE Department for Transport has needed an additional £60 million from the Treasury to balance its books for rail franchises in the current financial year, saying that industrial action is partly to blame.

Another £188 million has been obtained by raiding other transport budgets. The total additional support amounts to £248.7 million, which the DfT attributes to ‘the impact on the net revenues received from the train franchise portfolio, including the adverse impact on revenues from the TSGN [Govia Thameslink Railway] franchise as a result of severe disruption from sustained industrial action and performance issues’.

The revelation has come within a financial memorandum for 2017-2018 produced by the DfT, which received no publicity and is not traceable in the publications section of the DfT website.

The figures were debated in the House of Commons on 27 February, but transport secretary Chris Grayling did not attend and made no statement. Rail minister Jo Johnson did reply at the end of the debate, but without mentioning the franchise shortfall. It has also emerged that the cost of changes to the Intercity Express Programme, including contract variations for bi-mode trains, has been another £65.7 million.

Mr Johnson has told the Commons Transport Committee in a newly-published letter that the Department had been able to manage the ‘lower-than-expected income from rail franchising’ by a combination of additional income and ‘savings from other budgets’.

The size of the additional support has angered the RMT. The union’s general secretary Mick Cash said today: “The fact that the Government have been forced to admit that the taxpayer is being expected to bail-out Britain’s failing private rail operators to the tune of a quarter of a billion pounds is nothing short of a scandal.  There appear to be no depths to which the private rail franchising racket can sink that would force the Government to pull the plug and bring the services back into public ownership.  Profits are privatised and risks are carried by the taxpayer and it’s no surprise that over 70 per cent of the public now support RMT’s campaign for the railways to be renationalised.

“The allocation of expenditure is vague even by DfT standards in this Supplementary Estimate, so you can only wonder why the Department for Transport isn’t coming clean on which other franchises are failing. We can only assume it’s to try and cover up the scale of this scandal and keep the public in the dark as to the next operator to follow Virgin/Stagecoach on the East Coast into financial collapse.”

The fate of the current East Coast franchise also remains unclear. In a trading statement published today (27 March), Stagecoach said only that ‘Discussions are continuing with the Department for Transport regarding new contractual terms for the Virgin Trains East Coast business’. Transport secretary Chris Grayling warned in February that the present contract could only survive ‘for a very small number of months’.

Source: Rail News

What to do when your business needs emergency funding

March 28, 2018

Running a business isn’t always plain sailing and there may be times when you need an injection of funds, fast. There could be a number of reasons for this, such as broken equipment that needs replacing, late payment of invoices, or coping with seasonal peaks and troughs.

There are many funding options available to businesses and some are designed specifically to cover scenarios like those described above.

The funding you could apply for will depend largely on what you need the emergency finance for, as there are many tailored products out there that are more suited to particular situations. Let’s have a look at some of the more common reasons that businesses might need emergency finance and the possible funding options on offer.

Finance for late payment

Waiting incredibly long periods of time for customers to settle their invoices is a common problem experienced by businesses. In some cases, they could even be waiting up to 90 days to get paid for work they have long since completed. This can make running a business almost impossible where cashflow is concerned, especially for those firms which rely on a handful of large customers.

If you’re waiting months to get paid, how do you pay your suppliers for the goods you need to fulfil the next order?

Invoice finance is a great way to release cash and improve cashflow by borrowing money against your unpaid invoices. It involves a lender looking at your sales ledger, so as soon as you send an invoice, the lender advances you the majority of the cash immediately. They will pay the rest, minus their service charge, once the invoice has been paid by your customer.

For businesses trading overseas, the pay cycle is even longer, which is when trade finance comes in handy. When cashflow is tight, trade finance allows you to pay your supplier for a confirmed order, so the goods can be shipped without leaving you out of pocket for a long time.

Hire purchase for broken equipment

If your business relies on an asset, for example if you’re a manufacturer and key piece of machinery breaks, you’ll want to get it replaced as soon as possible. There are various asset finance options that can help if you can’t afford to buy it outright.

Hire purchase, for example, enables you to spread the cost of an item over time without a large up-front cost. Repayments are normally fixed on a monthly basis for easy cashflow management and you will own the asset at the end of the term.

There are also options for leasing the equipment, without having to buy it at the end, if that would suit your business better. This can also be a good option for any equipment that you don’t need for the long term, or if your future is uncertain. Maintenance is usually taken on by the lessor, and when the contract is up you can give back the equipment, or start a new one.

Merchant cash advances for sales businesses

There’s another type of borrowing which is great for retail businesses, and particularly those which use card terminals to process payments from customers. Merchant cash advances are a type of lending based upon your future card revenue, and effectively involve selling your future sales to the lender at a discount.

Unlike a standard loan, which has interest constantly running, the total cost of finance is agreed upfront and the amount you repay is proportionate to how much money you make — you’ll always be working towards paying off the fixed amount agreed at the beginning.

This can be a good way of releasing cash for broken equipment or plugging a cashflow gap in a retail business.

Short term loans for seasonal peaks

Some businesses are very seasonal, especially at times like Christmas, Easter or school holidays. This can require a significant amount of upfront investment as you prepare for the peak by buying extra stock, employing additional staff and maybe even taking on additional office or warehouse space.

A short-term loan could be a good way of injecting extra cash into your business to tide you over until the seasonal sales start to materialise. There are many business loans available now, from a variety of lenders, including loans specifically for small businesses with terms as little as three months.

Revolving credit facilities for seasonal troughs

On the other hand, some businesses will see a huge drop at times like Christmas, when business may almost grind to a stop. Throw in staff holidays and late payment from other customers and a seasonal trough can quickly become a serious situation.

Revolving credit facilities can be a good way of making it through those tough times. Rather than having a fixed loan agreement, these products are on a rolling agreement. You’ll have a set credit limit, but as soon as you have repaid some of what you owe, you can borrow again – as long as it’s within the overall limit. It’s like an automatically renewing loan that you can dip into as and when you need it when times are tight.

Conclusion

There are many different forms of emergency finance available when you need funding fast. Of course, some may be more suitable than others and accessing them can depend on the criteria of the lender, but the bottom line is there’s likely to be something suitable. One thing you should bear in mind is that fast and flexible finance usually comes at a price, so interest rates tend to be higher. In this article we’ve outlined just a few of the main funding options, but there are many others, and Funding Options can help if you need more help narrowing down the search.

Source: World First

Belvoir brings industry veteran Michael Stoop on board

March 28, 2018

Belvoir Lettings has announced that industry veteran Michael Stoop has joined the board as a non-executive director, with Nicholas Leeming stepping down from a similar position.

Belvoir, the UK’s largest property franchise, says Leeming leaves on April 10 after five years service, but Stoop is joining immediately.

After starting his agency career with Winkworth, Stoop joined the Legal & General Group in 1992 where he was instrumental in setting up Legal & General Franchising Ltd.

This converted its corporate estate agency business into a wholly franchised network before being sold in 2014 to The Property Franchise Group, then known as Martin & Co.

Related: Property franchise giant reveals £3.6m deal

Stoop then became group managing director of TPFG; he left last year.

Belvoir was, of course, in unsuccessful discussions with TPFG over a possible merger during 2017 but terms could not be agreed.

Stoop has been a member of The Property Ombudsman board since 2001, becoming vice chairman in late 2015. Earlier this year he became a non-exec director of PropTech firm Sorbet HQ.

Following Leeming’s retirement from the board, Stoop will take over the role of chairman of the Remuneration Committee and become a member of the Audit Committee.

Source: Letting Agent Today

Nottingham optician eyes national expansion

March 27, 2018

The owner a branch of opticians based on Friar Lane in Nottingham has announced the rebranding of his now independent business and has revealed big plans for the future.

Indy Atwal, owner of the former Nottingham CrossEyes, now known as Loxley Opticians & Eyewear Experts, exited his franchise agreement with CrossEyes with the support of local law firm Fraser Brown. In total, six franchisees recently chose to exit the franchise, resulting in CrossEyes closing its UK operation.

Now that Loxley Opticians & Eyewear Experts has rebranded and become an independent business, Atwal’s long-term plans involve building the company into a national brand bringing jobs and investment to the local area.

Loxley Opticians & Eyewear Experts is unlike other opticians and provides a relaxed environment where its customers are able to choose from a large variety of frames from independent designers.

Atwal said: “The CrossEyes chapter was a huge learning curve, but becoming an independent business has had a lot of fantastic benefits, including having the ability to change and adapt in ways that large companies often find difficult.

“Nottingham is the perfect city for independent businesses as there’s a lot of great support from both the Council and other business owners. We have ambitious plans to make Loxley Opticians & Eyewear Experts a well-known and established brand in the UK and I look forward to seeing the new business grow from strength to strength.

“When I first made the decision to open my own store, the Fraser Brown team helped me through the process of setting it up, and again now that I have changed to an independent business they helped me every step of the way. I think it’s so important to have knowledgeable and experienced people behind you when going through changes like this, and I couldn’t recommend Fraser Brown enough.”

Related: All You Need to Know About Running a Spa, Beauty & Hair Salon Franchise UK (Health & Beauty Franchises UK)

Loxley Opticians & Eyewear Experts, which has three members of staff, was given its new name as a nod towards Nottingham’s heritage due to its location and proximity to Nottingham Castle and the Robin Hood statue.

Fiona Boswell, head of franchising and commercial services at Fraser Brown, advised Indy on securing a release of his franchise.

She said: “Indy is very passionate and dedicated about what he does and has a clear vision of what he wants to offer. It has taken a great deal of work to get the company rebranded, but it looks fantastic and will be very well received in Nottingham.

“Indy is in a good position to run his own successful and independent business and I look forward to seeing the business grow. I’d like to wish him the best of luck in his new business venture.”

Source: The Business Desk

Women in Finance: 16-20 revealed!

March 27, 2018

Our inaugural Women in Finance ranking spotlights influential women across various sectors, including government, business, finance and accountancy, who are all leaders, trailblazers and transforming their respective fields.

Earlier this month, we put forward a longlist of female leaders to an audience vote. This week we’ll be announcing the results of the vote – listing five women each day ahead of the full ranking release of the Top 20 Women in Finance on 29 March.

So, to kick off the rankings, here are the first five women who have been named in positions 20-16 – based entirely on your votes.

20. Eileen Burbridge MBE, Partner, Passion Capital

In 2011, Burbridge co-founded venture capital firm Passion Capital, whose investments include Monzo, Ravelin and Swipe. Burbridge is currently a partner at the company.

She is HM Treasury’s special envoy for fintech and the chair of Tech City UK, the government-backed organisation supporting digital business across the UK. Burbridge is also a member of the prime minister’s business advisory group. In addition, she serves as non-executive director on numerous SMEs, including Monzo Bank, Digital Shadows and Tide.

19. Jayne-Anne Gadhia CBE, CEO Virgin Money UK

Gadhia has been CEO of Virgin Money since 2007, after co-founding Virgin Direct in 1995 and working with RBS for several years before returning to the Virgin brand as chief executive.

She is the government’s Women in Finance champion, having led a review into the representation of women in senior management in financial services. The review made a series of recommendations to firms to improve gender diversity in the industry, including the appointment of a senior executive team member responsible for inclusions and gender diversity, the publication of internal targets for gender diversity in senior management, publication of progress against these targets, and ensuring that the pay of the senior executive team is linked to delivery of the diversity targets.

In response, HM Treasury launched the Women in Finance Charter, which has so far been signed by 162 firms committing to improving gender diversity in the workplace.

Gadhia is also a member of the prime minister’s business advisory group, a trustee of Business in the Community and member of the Tate Board of Trustees.

18. Carolyn Fairbairn, Director-General, CBI

Fairbairn has been director-general of the Confederation of British Industry since November 2015, working with government and businesses to drive growth and employment in the UK.

She began her career as an economist at the World Bank and as a journalist for The Economist publication.

Fairbairn is an advocate for British businesses in the UK and internationally, drawing on her wealth of experience from her career in business. She has been influential in the Brexit negotiations, with the CBI drawing on comments from UK businesses to call for the agreement a transition phase post-March 2019.

As well as her role at the CBI, Fairbairn is a trustee of charity Marie Curie.

Her non-executive director roles have included Lloyds Banking Group, The Vitec Group and Capita plc.

17. Carolyn McCall, CEO, ITV

McCall became CEO of ITV in January 2018 following eight years at the helm of easyJet during which she delivered company growth and rising passenger numbers.

She is a member of the board of the Department of Business, Energy and Industrial Strategy, a trustee at the Royal Academy and a non-executive director of Burberry. She is also recognised for her outstanding contribution to the aerospace industry with a Doctor of Science from Cranfield University. She was made a Dame in the 2016 New Year’s Honours list for services to the aviation industry.

McCall assures that TV is not dead and has spoken of what she plans to do in her new post, including pushing ITV’s support of an anti-obesity initiative called “The Daily Mile” in primary schools.

16. Barbara Judge CBE, Former Chair of Institute of Directors

Judge became the first female chair of the Institution of Directors in 2015. Seen as a champion of women, during her tenure she focused on encouraging women to join the organisation.

Outside of the IoD, Judge is a strong voice on the Brexit debate and was a board director of Dementia UK until March 2018. She has held many roles in finance throughout her career, including as a member of the US Securities and Exchange Commission, an executive director of News International, and chair of UK Atomic Energy Authority.

However, Judge is no stranger to controversy. She resigned from the IoD this month over claims of bullying and racism. She has denied the allegations, vowing to contest the claims, stating in her resignation letter: “I continue to strongly refute the allegations made against me and remain deeply disturbed by the gross and conspiratorial mishandling of the process which has led to the damaging circumstances in which I and the Institute are now placed.”

She was awarded a CBE in 2010 for services to the nuclear and financial services industries.

Source: Accountancy Age