Will Glencore survive the crisis they are facing?

"Glencore must stop bleeding now!" - Christopher LaFemina (analyst at Jefferies).

Four years ago, Glencore introduced the biggest flotation in the history of London Stock Exchange. Their message to the investors was clear - the company was unique compared to the others in the industry. However, today the company does not seem to be much different from its rival, if not worse. The market has been fluctuating and unlike its competitors, Glencore also has a large amount of debt. Investors have been doubtful about how the company is planning on paying this off hence the volatility in share prices.

The company has been reported to be one of the worst performers in the FTSE 100 index over the past year with their share price falling approximately 72%. Their share price decreased by about 30% on Monday during the last week of September - this was their largest reduction in the company's history which has happened in a single day. However, as a quick crisis management action, the company released a statement to their employees stating that they had a "strong liquidity profile" and were able to recover a large proportion of what they had lost on Monday. This suggests that the shareholders has a technical approach when dealing with their shares - they buy shares when the market has improved and sell them when it is declining. I believe that this is a sensible approach for those who are not risk takers.

Glencore has also been receiving some criticism about their business model but their have been different opinions on this. Some executives of rival companies believe that this is not true and that the main problem lies with their poorer quality assets. The company has been around for quite awhile now and it is not possible for them to survive this long without a good business model so I do not think that they should be making drastic changes to their business model. I believe that the main problem lies with the misleading figures in the financial statements.

In my opinion, one of the essential aspects for a company to be successful is to have the right financial statements. Understating the debt so that the figures look good is never a good idea. Management can convince themselves that they do not have a debt problem and they would also be providing false information to their investors. One of the Glencore investors suggested that the management team could not have predicted the current situation because they were not aware of a balance sheet problem. It could be that the management did not realise that they had a debt issue in the company because of the misleading figures in their statements. Considering all of this, one of their current targets should be to make the balance sheet look better.

As of June 30 2015, their net debt reached about $26.9bn which was about 2.7 times their annual earnings. This is a higher ratio compared to its competitors and the company should have been aware of the consequences. Glencore has already taken actions to rectify this and have launched a $2.5bn equity-raising as part of their plan. They are aiming to reduce their debt by about $10.2bn which should make their balance sheet look better and hopefully build up the confidence of their investors. The company is predicting that their share prices would increase once they manage to reduce their debt.

One of the key things to remember is that this was not a plan for the senior managers to make money while the company faces its downfall - this has been the case for some businesses in the past and it is essential that the stakeholders know that this is not the case. The value of Mr. Glasenberg's stake is $7.6bn lower than what it was earlier and the company is working on plans to recover from the current problem.

When investing in companies, I think it is better to use the portfolio theory and spread the risk so that if one investment goes downhill, you are not losing all of your investment.

Let me know what you guys think in comments below!

Hereford Furniture: Sir Digby Jones helps a family-owned company with over 40 employees.

"British manufacturing is something we should be proud of!" says Lord Digby Jones. This may be why he has decided that his next task would be to help Hereford Furniture - a family owned business who was doing fairly well until making a loss of £80,000 last year. Digby believes that there is a market for different types of furniture but in order to beat the market, Hereford Furniture will have to increase the efforts they are putting in.

There are a few key problems Digby planned to solve during his time working with the company. One of the 'nagging points' for Digby was that Hereford Furniture was focusing on three things - manufacturing, retailing and importing. His question is - can the business succeed in all three? MD Mike Muxworthy responds with 'Why not?'

Digby argues that Hereford Furniture may not have the specialist knowledge for all three areas they are focusing on. It may be better for a business to focus on the area that they have the most knowledge in; this might give them a better chance at being successful. This is what Digby believes that Hereford Furniture should do.

Another issue that Digby wants to tackle is the problem of branding. The company wants to be recognised as a household name but they do not display their brand on any of the furniture they sell. Digby's question is "How can you hope to build a brand when you by your actions value it so little?" Hereford Furniture aimed to introduce a new brand known as 'Hereford by Design' which would only be sold to companies who agree to sell it under the brand. The question is, is this the right brand for the company who wants to catch the attention of their customers?

The team met with Emma Bridgewater and presented their new ideas to her - taking the current range of furniture and upgrading to a premium so that they would have additional features but how were they going to make something that Emma would not look past? How can they have a 'buy me effect' on the customer? In addition to this, Do Emma and Digby think that Hereford by Design is actually good enough to go to the market? Emma suggested that the company should offer a variety of colours.


Digby believes that Hereford is not the right word if they want customers to be talking about them. It only lets the customers believe that the furniture is functional and that they would get the value for money but where is the uniqueness which will push the customers towards actually making the purchase? Louise suggested a Danish word - Hygge - which was about social interaction and being home and wanting to be there. Digby agrees and suggested that this was the right idea for the new brand. Hygge gives the company personality and Digby believes that people will question it since there is no definition in English for it.This is an ideal way for them to increase brand awareness.

To improve the efficiency and effectiveness of the company, Mike informs the shop floor staff that they are going to cut a lot of ranges - approximately 49 out of every 50 products - and that they need to get the customer to order what they actually manufacture. Digby thinks that it is important for the business to have accurate forecasts and Kate agrees since she thinks that they are seeing the benefits of the new model but have no way of actually showing them on paper. Mike argues that it is a family business and that they do not necessarily need forecasts. An accurate forecast would be beneficial to the company since this would show them the financial implications.

Another problem Digby aimed to solve is the way the shop floor staff worked. Communication is key for them to increase their productivity. Some employees believed that they do not normally work together so a team building exercise was arranged for them. For them to maximise their productivity, the shop floor team would need more of these. Team building cannot be done in a day!

Small and medium sized businesses are important for the community because these companies are the ones who would hire that one extra person to solve unemployment in their economy. Therefore, it is important for businesses such as Hereford Furniture to continue their business.

What do you think? Let me know in the comments below.