3 July 2012

Norbain’s take-over by Newbury feels like a major seismic event – but is it really? Even as speculation spreads about who the big losers might be – and who stands to gain – there is another, more cynical view, that in a few months not much will have changed. The story so far: Norbain goes into administration, sold by administrators in prepack Industry reels at Norbain administration amid warnings contagion may spread Norbain’s suppliers are the big potential losers. Even if most have insurance or factoring deals to protect them from bad debts, for some the likely delay of several months before they see any money could cause real difficulties. But however much short term disruption there is – and however much ill feeling among creditors – it’s unlikely to be the end of the story. Geoff Hilton, managing director of Norbain customer Kent & Sussex Security Ltd, predicted in time that most companies would be prepared to do business with Norbain again in its new guise. “I suspect eventually they will be prepared to trade with Norbain again, albeit perhaps not on the same terms, thus having the opportunity to earn back past losses from future sales.” (SecurityNewsDesk will be publishing a longer interview with Mr Hilton later today). Great opportunity Mark Raine of CCTVdirect agrees – suppliers with limited routes to market will have to “take the haircut”, although many will see it as unfair. “I find it very irritating. They will carry on trading and even be in a stronger position because the customer debt gets transferred or the debt book is sold. It’s writing off the debt and starting afresh – like not paying off your mortgage but staying in your house.” Short term, he adds, Norbain may lose a few customers, but after a few months people will forget and carry on buying in the same way as before. “If I was Norbain I’d be thinking this is a great opportunity.” (In a previous version of this story, we wrongly attributed Mark Raine’s comments to Mark Thomas of Midwich Security, for which we apologise.) ‘Box shifting’ culture puts distributors under pressure However, Norbain has been competing in an increasingly difficult market, says Andrew Whelan, MD of integrator IC2. Before 2007 his company had a substantial account with Norbain but then has switched to specialise in megapixel technology with Avigilon. “I don’t know how people survive in an analogue market. If you set yourself up as a ‘box shifter’ then you’ve got to have the cheapest price because there’s no loyalty and so much competition with imports,” says Mr Wheelan. “Installers are pushed by their customers and they just want the cheapest thing on the market. Customers don’t seem to care any more about whether it’s Samsung or Panasonic. They just want any CCTV system for deterrent or insurance. “As a result you have distributors working on a 5pc margin and people pushing them for credit. Then it only takes a few bad debts for everything to go wrong. As a business model it’s a match made in hell,” he adds.

The security industry was left reeling yesterday as news spread that Norbain SD, one of Europe’s largest distributors of CCTV, IP video, access control and intruder detection equipment had gone into administration and been sold under a ‘pre-pack agreement’ – a controversial move that’s sparked criticism. The story has had over 4000 hits since it went live on SecurityNewsDesk Monday afternoon. As key manufacturers, suppliers and other distributors absorbed the implications, there was a marked reluctance to speak out publicly. The repercussions are likely to be significant, but many realise the practical reality of continuing to deal with the organisation and its staff. “There’s bound to be Schadenfreude among other distributors, but this is a sad day because people will get hurt and jobs are likely to be lost,” one industry insider commented. Contagion potential In echoes of the Eurozone crisis, the scale of the losses that some Norbain creditors may suffer is also being viewed in terms of the ‘contagion’ effect it may cause to the balance sheets of Norbain’s suppliers – many of whom are already struggling with the economic downturn. Observers are poring over the financials of those likely to be exposed and making arrangements in case of any “domino effect”. The warnings are being amplified by the nature of the “pre-pack” sale to Newbury Investments – described by a commentator as “walking away with the assets, leaving others holding the baby”. Three years ago, Jon Moulton of Alchemy Partners, which tried to rescue Rover from collapse in 2002, said the technique – known as pre-pack administration – was “wide open to abuse”. From April, HMRC has been able to demand a security from companies when the taxman considers there is a “serious risk” that the business will try to dodge PAYE or National Insurance Contributions (NICs). The crackdown is targeted at business owners who deduct income tax and NICs from their employees’ pay packets “but have no intention of paying it to HMRC”. HMRC said these companies often build up “substantial debts” and then use a pre-pack administration to set up a new, debt free business – a so-called “phoenix firm” – to continue trading. Failure to pay the security – which can be a cash deposit or a bank bond – demanded by HMRC will be punishable with a fine of up to £5,000. There is no suggestion that this is what the directors of Norbain SD have done, but the negative connotation of pre-pack agreements is making many in the security market nervous. Suppliers and customers ‘in shock’ As the industry continues to assess the impact of the take-over, Gerard Garcia of Team Genesa says it’s not just the big manufacturers who may lose out, but installation and integration companies reliant on Norbain for essential equipment or support with current projects. “We know of a couple of installers in the Kent area who may well be affected, though of course it’s the big suppliers who will bear the brunt of this,” he told SecurityNewsDesk. “It has come as a shock to most of us – I haven’t had feedback from the likes of Samsung or Sony yet but everyone is trying to assess what impact this will have.” The next few years will be very hard for parts of the industry, he warned, with customers cutting spending. However, as one company owner speculated privately, for some struggling installers the administration of Norbain may actually be welcome news, at least in the short term, as it will give them more time before invoices are chased by the new owners. “We had a similar situation in the past where we owed a supplier £25,000,” he said. “The liquidators get it out of you in the end but it’s nice to have longer to pay.”