The Electricity Company Of Ghana Action Plan Finance Essay

The Electricity Company Of Ghana Action Plan Finance Essay Electricity generation, transmission and distribution in Ghana mainly involve three institutions that work in an interrelated manner. Volta River Authority (VRA) generates the electric power through hydro and thermal plants and, until recently, also had responsibility for the high voltage transmission system. The Ghana Grid Company (GRIDCO), created as part of reforms in the power sector, now has responsibility for the high voltage transmission so as to have that separated from generation entities. It is the least known of the institutions. The Electricity Company of Ghana (ECG) distributes the energy produced to most consumers through low voltage transmission lines. It is the institution that is in direct contact with most of the public. Figure 1 below shows the main processes of the power distribution in Ghana. The ECG is a limited liability company owned solely by the Government of Ghana and has the responsibility of supplying and distributing electrical power in the southern part of Ghana. It was established in November 1997 as Joint Stock Company based on the companies code in accordance with the 1993 Corporate Act (Act 461) of Ghana. The company has its headquarters in Accra, a total workforce of 5,281 with a customer base of 1.7 million (ECG annual report 2008). Vision The ECGs vision is to be among the leading electricity distribution companies in Africa in terms of quality, safety and reliability. Mission Statement The mission statement of the company is to provide quality electricity services to support economic growth and development in Ghana. The primary objective of the company is to supply electrical energy to people in its areas of operation. In discharging its various duties, the company has executed a number of national electrification programmes on behalf of the government. The ECG is a monopoly in the electricity distribution sub sector of Ghana. The tariffs that clients pay for the supply of electricity services are regulated by the state owned company called Public Utility Regulatory Commission. The ECG charges commercial rates to its clients which are subsidized by government. Organizational structure The company is run by the Board of Directors, Principal Officers and Advisors. The companys Board of Directors are appointed by the Government of Ghana. The Principal Officers and Advisors control and run the eight directorates of the Company. These directorates are Engineering, Operations, Customer Services, Materials Transport, Finance, Audit, Legal Services and Human Resources. Figure 2 below depicts the organizational structure of the ECG. Fig.2: The Organizational Chart of ECG Board of Directors ManagingDirector rector Divisional Managers (3) Divisional Managers (6) Director Legal Services Director Customer services Divisional Managers (3) Employees Employees Director Human Resource Director Customer services Director Material and Transport Director Material and Transport Director Audit Director Finance Director Engineering Director Operations Divisional Managers (6) Divisional Managers (3) Divisional Managers (2) Divisional Managers (2) Divisional Managers (3) Divisional Managers (3) Divisional Managers (5) Divisional Managers (3) Lower managemt Employees LOwer Managemt Employees Lower Managemt employees Employees Lower Managemt Employees Lower managemt Employees Lower managemt Employees Lower Managemt Employees Lower Managmt Employees Board of Directors The Board of Directors as at 29th June, 2009 was composed of the following persons: Ing.Sqn. Ldr. Clend Sowu (Rtd.): The chairman of the Board. He is a Consultant Engineer and a Retired Military Officer. Mr. Cephas Gakpo: The Managing Director of the company Mr. Bernard Allotey Jacobs: A Media Practitioner Barimah Kwame Nkyii XII: Omanhene Assin Aimanim Traditional Area, Tax Ecpert. Dr. Kwaku Osafo: Economist/Engineer Mr. Samuel M. Codjoe: Lawyer Mr. Anthony Gyampo: Educationist Mr. Kwabena Adjei: Businessman, Communication Professional Hon. Dr. Nii Oakley Quaye-Kumah: Member of Parliament for Krowor Constituency, Veterinary Surgeon Mr. Jake Kofi Anre: A Lawyer and Secretary to the Board Directorates of ECG The Engineering Directorate is responsible for the planning and designing of the distribution network. The directorate is also responsible for the procurement and implementation of investment projects. The Operations Directorate is responsible for delivering quality reliable and safe supply of electricity to customers, maintain the network regularly in order to reduce the number of interruptions and outages, respond quickly to faults and use modern technology to operate the distribution system; Materials Transport Directorate has responsibilities of managing all activities regarding materials received for projects and other ECG operations. In addition, the department has to manage all operations regarding Transport (Vehicles). Customer Services Directorate has responsibilities of gathering all information about Power Purchases, Power Sales, Average End-User-Tariff (EUT), System Losses, Revenue Collection, debtors position at the end of each year and customer population. Audit Directorate is responsible of operational, commercial and financial activities of ECG. With Technical Audits, physical inspections and reconciliation of materials usage are carried out. The directorate is also responsible of Audit investigations on fraud and corruption. Lastly, it support Management about operational activities and give directives to address them. Legal Services provides legal services to the ECG. The Director is the Secretary to the Board of Directors and maintains a Board Secretariat to provide secretarial services to the Board of Directors. He is involved in the prosecution of people involved in the illegal activities against the ECG to reduce system losses. Finance Directorate has responsibilities of analyzing and reviewing financial data, reporting financial performance, preparing budgets and monitoring expenditures and costs for the ECG as a whole. Human Resources Management Directorate has responsibilities in the following areas: Staffing (Employment and Recruitment, Personnel records, Compensation); Training and Development and Industrial Relations (Health and Safety). The ECG is a Strategic Enterprise in the sense that it is the only electricity distribution company that supplies electricity to the whole of Ghana. Secondly it offers employment to over 5,000 Ghanaians, making it the largest employer in Ghana. SITUATIONAL ANALYSIS The analysis of the performance of ECG as described below is based on available information up to year 2008. The Impact of Global and National Forces on ECGs Operations The worldwide economic recession (Credit Crunch) affected both the economy of Ghana and ECGs operations. The year saw rapid hikes in crude oil and metal prices which resulted in the high cost of power generation from thermal sources and sharp increases in the cost of materials and equipment required for capital investment projects. The Ghana Cedi also depreciated against the major world trading currencies especially the US Dollar, the Euro, and the British Pound. Since most of the inputs for ECGs capital investment projects were imported, prices consequently increased relative to energy sales which were generally denominated in the Ghana Cedi. The cost of investment projects therefore increased from 12% to about 20%. The U.S dollar for instance appreciated in value against the Ghana Cedi from a rate of $1: GHÂ ¢0.92 in July 2007 to $1: GHÂ ¢1.49 in June 2009Â  [1]Â   The inflation rate in Ghana also contributed to the high cost of operations and subsequently affected the companys profitability. The inflation rate has increased over the period from an average of 10.73% in 2007, 16.46% in 2008 to 19.86% in 2009. This resulted in increases in labor cost and other local raw material inputs. Details of the inflation rate is attached as appendix 1 Financial, Operations and Human Resources Performance Profit and Loss The ECG has made an operating profit of GHÂ ¢25,089,202 in 2008. Prior to this year, the company had been making losses. In 2006 and 2007 for example, the net operating losses were (GHÂ ¢3,429,300) and (GHÂ ¢8,657,716) respectively. Current Assets The stocks level at year 2008 was GHÂ ¢135,851,792. This was an increase of 99.8% over year 2007 figure. The Accounts Receivables also increased by 50.5% to GHÂ ¢258,033,418 in 2008. The table below depicts the status of the Current Assets of the company over the three year period from 2006 to 2008. Current Assets 2008 GHÂ ¢ %age change 2007 GHÂ ¢ %age change 2006 GHÂ ¢ Stocks 135,851,792 99.8 67,999,841 39.3 48,800,300 Debtors 258,033,418 50.5 171,411,587 16.2 147,503,100 Prepayment 8,323,294 184.6 2,924,574 48.4 5,665,800 Short Term Investment 16,358,519 108.5 7,845,126 12.0 7,002,600 Cash and Cash Balances 49,473,765 42.6 34,690,929 16.4 29,796,100 468,040,788 64.3 284,872,057 19.3 238,767,900 The increases in the stocks and debtors depict a weak inventory management and credit policy of the company. Debtor/Sales Ratio The Debtor/Sales ratio which is an expression of customer debt in days of billing was 130 days in 2008. It deteriorated from 138 days in 2006 to 162 days in 2007 representing a decrease of 17.4%. Although there was an improvement from 162 days in 2007 to 130 in 2008, the figure is still too high. Loans and Suppliers Credit The ECG through the Government of Ghana has secured the following loans and credit from the World Bank and other suppliers for investments in its distribution network. This has increased the companys debt situation tremendously. DSUP $15m financed by IDA, ECG (2003-2007) GEDAPÂ   $94.5m financed by IDA and partners, AfDB, ECG, (2008-2012) GEDAP Extension $70m for Ashanti Region, financed by IDA (2010-2014) French credit Euro 65m for Tema and Kumas. Financing from the french govt. (2008-2012) Norwegian credit Euro 60m for Greater Accra and Eastern regions. Financing from the Norwegian govt. (2008-2012) El Sewedy credit 16.5m from El Sewedy TD (2010-2011) As at December 2008, an amount of GHÂ ¢171.92 million was outstanding in suppliers credit. Systems Losses System loss is a power loss in its course from the source to end users. In 2007 the systems loss was 24.03%. This increased to 25.58% in 2008 as result of poor transmitting system and also theft through illegal connections. The ECGs performance in this area is declining and this is adding onto the cost of operations of the company. The table below shows the trend of the systems losses over a three year period from 2006 to 2008. System losses units (GWh) Year 2005 2006 2007 2008 Total Purchases 5045.4 5252.8 5145.6 5799.4 Total sales 3762.0 3978.4 3909.1 4315.8 System losses in % 24.26 24.03 25.58 Human Resources Capacity ECGs staff strength at the end of the year 2008 was 5,281. This was an increase of 6.07% over year 2007 figure of 4,929. Staff turnover over the year period is showed in the table below. Employee turnover Year 2006 2007 2008 Employee turnover 3.02% 3.27% 3.53% The percentage of employee turnover increased from 3.27% in 2007 to 3.53% in 2008. The reasons assigned for this increase upon our investigation are lack of motivation and incentives to the employees. Evaluation of ECG This section of the Plan tries to come out with a range of expected fair market values for ECG incase the government find it necessary to privatize it. The main purpose of this evaluation is to give all stakeholders especially government and management of the company a fair market range of values within which the ECG can be sold. ECG, as already mentioned above is a public monopolist and as such not listed on the Ghana Stock Exchange (GSE). As a result of this, the market Comparison Method of evaluation can not be used. The only feasible formulas to use would be the Asset Appraisal Method and the Discounted Cash Flow Method. Asset Appraisal Method This method involves revising all the asset and liabilities of the company including Goodwill. Using the 2008 audited financial report of the company, we can easily get the values of the asset and liabilities of the company at Net Book Values (NBV) and not the Revised Values. Since we are not in a position to revalue the companys assets and liabilities we are solely relying on the NBV of these assets and liabilities. The NBV of assets and liabilities for the 2008 financial year were given as follow: 2008 GHÂ ¢ Current Assets 468,040,788 Fixed Assets Plant, Property and Equipment 1,171,197,452 Goodwill 2,021,653,890 Total Asset 5,008,661,390 Less Current Liabilities (259,567,145) Value ECG 3,401,324,985 Calculating the value of Good Goodwill is calculated based on the Supper Profit Method. This involves determining a value for the expected future profit of the company. Here, some past profit of the collected based on the 2008 report and an average is taken. We then make adjustments to reflect future profits. Thus, expected future expenses and income are adjusted. Years Net profit/Loss GHÂ ¢ 1999 17365,259 2000 (7,583,807) 2001 152,973,046 2002 (451,974) 2003 (483,609) 2004 (269,686) 2005 (305,425) 2006 (475,200) 2007 (48,836,581) 2008 11,598,017 Total 123,530,040 Average profit for the 10 years = Expected Future Operating Expenses Looking at the operating expenses of the company over the years, the average expenses over the years is around GHÂ ¢6,574,530. Since expenses are expected to increase over the coming years, a 10% adjustment is made to reflect future changes. This 10% was chosen based on the increasing trend of operating expenses from 1999 to 2008. This brings the total future expected operating expenses to (GHÂ ¢6574530 +GHÂ ¢657453) GHÂ ¢7,231,983. Expected Future Income Again, looking at the operating income over the years, the average income for the 10 years is GHÂ ¢54,145,602. Since the expected income are expected to increase as a result of the stabilization of the Ghanaian Cedi against major foreign currencies, stable world price of crude oil, materials, and of course the discovery of crude oil in Ghana. Taking all these factors into consideration, a 15% adjustment is made to reflect these changes. Therefore the future operating income is (GHÂ ¢54,145,602 + 8,121,840) GHÂ ¢62,267,442 GHÂ ¢ The number of years of purchase which depends on the bargaining powers of both the government who is the owner of ECG and the would-be private investor on the reputation of the company. ECG, as earlier discussed, serves both the Ghanaian Economy and other two countries in West Africa (Togo Benin). It also has the potential to expend to other countries as a result of the discovery of crude oil in Ghana. With all the above reputations and potentials, we have decided to fix the number of years of purchase at 30 years. The Goodwill for the company would be Limitation of this method The value of the fixed assets used in the valuation might have some composition of non-productive assets and therefore would affect the fair market value of the company. Discounted Cash Flow Method This method takes into consideration the time value of money. Thus, discounted cash streams of future cash flow. Here, the first thing we do is to forecast the future cash flow by making adjustments to 2008 cash flow of the company. From the cash flow statement (2008), the net cash flow was GHÂ ¢15,819,658. Since cash inflows are expected to increase over the next few years due to expansion and reduction in operating expenses, an upward adjustment of 15% is made to the net cash flow for the next five (5) years. Thus, from 2008 up to 2013. Expected net cash flow from 2013 upwards can not be forecasted due to uncertainty. Discount Rate The company is at the moment using a discount rate of 10%. Due to the possibility of inflation and exchange rate fluctuations, have decided to fix the discount rate between 12% 15%. According to the discounted cash flow method: FMV = Present value of cash flow up to the terminal year + Present value of terminal value. Year Expected Net Cash Flow GHÂ ¢ 2009 18192607 2010 20921498 2011 24059722 2012 27668681 2013 31818983 Using the NPV formula which is given as: NPV =, we can now calculate NPV at both rates of discount (12% and 15%). NPV @ 12% = But Terminal = NPV = NPV (12%) = GHÂ ¢2,200,234,081 NPV @ 15% = But terminal value = NPV = GHÂ ¢1,708,064,531 Interpretations Since the Asset Appraisal Method gave us the highest value of GHÂ ¢3,401,324,985 it would be considered. We are therefore concentrating on the Discounted Cash Flow Method range of values to determine the value of the company. This therefore means that the value of ECG, must be in the range of GHÂ ¢1,708,064,531 and GHÂ ¢2,200,234,081. SWOT ANALYSIS The investigations conducted on the ECG revealed the strengths, weaknesses, opportunities and threats as summarized in the table below. STRENGTH Competent Work Force High level of technical expertise Government Support A monopolist (large customer base) Facilities (i.e. warehouse) Availability of donor funds Installation of prepayment meters Customer Call Center Vast Distribution network system Low cost of production as compared to countries in the sub region Availability of electrical fault detection technology WEAKNESSES High turnover of professional and technical staff Uncompetitive conditions of services Lack of rule enforcement Poor Communication Lack of team work Not clear defined job descriptions Talents in the company not used to the best advantage No effective Research and Development (RD) Weak Inventory Management High network distribution losses Mismanagement of resources OPPORTUNITIES Potential to expand (nationwide and other countries) Potential of quality power delivery Political and Economic stability Staff training and development West Africa Gas Pipeline Oil discovery on the coast of Ghana THREATS Government Interferences Government determination of Tariffs Fluctuations in the exchange rates Effects of inflation Natural Disasters (i.e. rain storms) Increasing World prices of metals, materials and equipment WEAKNESSES OF THE THREE MAIN DEPARTMENTS THAT NEEDS TO BE RESTRUCTURING BASED ON OUR ANALYSIS MATERIALS AND TRANSPORT DEPARTMENT Weak Inventory Management Unstructured Procurement Unit Increases in the world prices of metals, materials and equipment Mismanagement of Company resources Effects of inflation on local procurement Fluctuation in the exchange rate OPERATIONS DEPARTMENT No effective research and development High network distribution losses Unreliable and low quality of power supply Inadequate training and development of operations staff Inadequate staff HUMAN RESOURCES MANAGEMENT DEPARTMENT High turnover of staff Talents in the Company not being used to the best advantage Poor Communication Lack of team work Uncompetitive conditions of service Lack of rule enforcement No well defined job description Excess labor force STRATEGIC ALTERNATIVES AND RECOMMENDED STRATEGIES Based on the SWOT analysis, the following strategic alternatives are recommended to bring about turnaround for the Material and Transport Directorates; Human Resource Directorate and the Operations Directorate. MATERIAL AND TRANSPORT DIRECTORATE Assets Reduction Strategies: Divesting Specific Assets Assets that are in surplus with respect to the future requirements of the company should be sold off. Unproductive and obsolete assets such as transformers, power cables, electric conductors and meters should be sold. Reducing Inventory Material costs should be reduced through improved buying practices, better utilization of materials and efficient inventory management. Inventory of the company such as transformers, meters, cables, conductors and wooden poles should be managed based on Vital Few Trivial Many Principle. This will help the company to avoid holding too much inventory, which is cost to the company and also prevent the company from holding too little inventory which can make the company loose customers. Not only that but also, the reorder level should be fixed between the maximum order level and the minimum order level to prevent the inventory from reaching the danger level. Reducing Debtors (Accounts Receivables) There should be a credit policy to help in the effective administration of the debtors. Customers credit worthiness should be well determined. Debts should be collected within 30 days. There should also be a debt recovery plan. Reducing Cost The Company should adopt Total Cost Management (TCM) control strategy as a way of reducing cost. There should be intelligent optimization and not just cost cutting in the areas of direct costs; overheads; procurement costs; production costs; selling and distribution costs; inventory costs; personnel costs. There should be speedy execution of contract bids and procurement processes to avoid additional costs being incurred as a result of lapse of deadlines. The introduction of e-Procurement should also be used to facilitate the procurement process. The company should also enter into forward contracts to reduce costs. Debt Restructuring Arrangements should be made for third party (government) to service the debt on behalf of the enterprise. There should be selective sale of assets and the revenue that would be realized from the sale of these assets should be used to offset the debt owed to suppliers. Legal Restructuring Specific legal steps should be taken to privatize the company. HUMAN RESORCE MANAGEMENT DIRECTORATE Organisational Restructuring There should be a merger of the engineering and operations directorates to ensure harmonization of action plans towards the achievement of corporate objectives. Information technology should also be used to make the hierarchical organizational structure flat. A strategic planning unit should be created and headed by a corporate strategist to lead the process of strategically positioning the company towards the achievement of the companys goal. There should be appropriate job descriptions, specifications and schedules matching with the qualifications, experiences and skills of employees so to get the best performance out of them. Furthermore, training and development should be a routine exercise for the company. Rules and regulations should be explicit, easily accessible and discipline enforced to ensure compliance with set standards. Labour Redundancy Management should develop a Redundancy Implementation Plan considering the economic climate and political mood of the country, since the implementation of the redundancy plan could be a complex and time consuming process. Staff Performance Appraisals methods such as the Balanced Scorecards should be used to identify and declare non performing staff redundant. Compensation packages should be prepared for such redundant staff, and contingency plans made for unforeseen circumstances in the event of strikes. OPERATIONS DIRECTORATE Physical Restructuring It is recommended that this Directorate should be merged with the Engineering Directorate to bring about efficiency and effectiveness. The size of budget for Research and Development should be increased. Investments in distribution networks should be increased to improve quality and reduce losses of electric power. There is also the need to improve upon the monitoring of customers consumptions to be able to detect theft of electric power. The technical staff strength should also be augmented and given the appropriate technical know-how so to be able to cope with the growing demands of the proposed merger of the Operations and Engineering Directorates. Safety equipment should be made available for the staff to use in protecting themselves in order to reduce the rate of accidents. Proposed Timeline for implementation of Turnaround strategiess TURNAROUND STRATEGIES 2010 2011 2012 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Discussions with Management Assets Reduction Reducing Cost Debt Restructuring Legal Restructuring Organisational Restructuring Labour Redundancy Physical Restructuring Conclusion ECG plays a vital role in the socio- economic development of Ghana and there is no doubt that any Turnaround would yield enormous benefits to the Ghanaian economy. Hence, for the above recommended strategies to bring about any meaningful Turnaround, it calls for commitment and support of management of ECG and the government of Ghana. Not only that but also, for efficient and effective implementation of the strategies, there is the need for expert knowledge and advice. It is therefore hoped that the necessary support will be given for the desired results to be realized in ECG. Privatization Option The public sector in Ghana has suffered setbacks which are largely attributed to ineffective and in efficient management. When we consider the case of Ghana Electricity Company, noticing the trend of losses of the company over time and the failure to meet the objectives or purpose of its formation, in view ,it is suggested that it would be better for the ECG to involve expatriates into their operations, this can be done by private sale of there shares to the foreign multinationals who have got the technical and financial knowhow and experience in the distribution of energy to buy into the private share of the organization ,Government should endeavor to have multinational partnership in the operation of the privatization by giving them of shares in the enterprises. There is need for good follow up on privatized enterprises. This would make the organization to be more effective and efficient in their operation. The federal Government should encourage this multinational to participation in the distribution of power in Ghana. This would be done by establishing a power sector reforms which will allow the involvement of foreign multinationals expatriates in the distribution of power. These reforms would include the provision the necessary Infrastructures which would enable the reduction in establishment costs, rationalization of power tariff, mobilization of private capital for power generation and transmission and lower capital-power generation ratio. In order to achieve these goals, distribution companies. A State Electricity Regulatory Commission would also be also set up to monitor the operation of the company. The desire to involve the private sector in the management and provision of infrastructure and services which will prompt multinational company to buy private share of the organization. . Private placement occurs when a company makes an offering of securities not to the public, but directly to an individual or a small group of investors. Such offerings do not need to be registered with the Securities and Exchange Commission (SEC) and are exempt from the usual reporting requirements. Private placements are generally considered a cost-effective way for small businesses to raise capital without going public through an initial public offering (IPO) The ECG should sale 49 of its shares to a multinational partner would be able to participate in the core business of energy distribution in Ghana. Also the Government should provide

Role of Finance Companies

Role of Finance Companies Traditional role of Finance Companies The finance companies are much smaller in scale compared with commercial banks, and they are also saddled with more restrictions which will be discussed later in the report. Traditionally, they relied on their personalized and flexible services to attract clients. This is because there are always consumers who are rejected by the commercial banks because adding these consumers to their portfolios would be uneconomical for these commercial banks as their economies of scale cannot offset the transactional costs these clients would bring because of the small margins these smaller consumers bring. These mainly include people or companies who do not have the capital to meet the relatively higher capital requirements of the commercial banks compared to finance companies. One example would be the current business account for companies. The major banks such as DBS and OCBC also offer low startup requirements, but charge a monthly management fee if their balances fall below $10,000 , not a big amount for businesses but possibly a stretch on new and small scale businesses. Hence, finance companies plug that gap with much lower balance requirements that would be more attractive to these business owners. Another example would be home loans by which finance companies offer a wider range of interest rates for a different range of financing needs compared to commercial banks who offer more generic rates on a whole. Emerging opportunities for Finance Companies Financial companies are however, now exploring new opportunities that they have not been able to capitalize on before. For example, Hong Leong has recently been awarding underwriting rights by the MAS, a traditional stronghold of commercial banks. This has redefined the boundaries that a traditional finance company in Singapore held due to regulations under the finance companies’ act. Wealth management, a relatively fast growing new segment in Singapore, has seen Hong Leong also wrestling in with a slice of the pie that many expected the commercial and investment banks monopolize. Industry Performance Finance companies form a small and unique portion of the financial services sector here in Singapore. A large part of their income comes in the form of interest income from loans and also commission fees for services that they offer. By focusing on domestic opportunities, they have managed to avoid exposure to the credit crisis that many others in the sector have been affected by. This has thus helped all 3 firms in the sector to post stellar results over the past year. As shown below, Singapore’s GDP growth YoY was 7. 7%, a slight moderation from the 8. % in 2006. This represents opportunities as the need for financial services increase as people in Singapore gain affluence. Growth of profit for Finance Companies Growth on EBIT ranged from a low of 38. 7% to a high of 65. 2% riding on increased receivables for all 3 finance companies. This is exceptional considering the cloud that has shrouded the financial sector in recent times. In dollar terms, their p rofits grew by SGD$43million to a total of over SGD$150million. Also, operational efficiency was a strong driver of the profit growth. Revenues remained rather stable and it was the decreased operating costs that led to higher profits according to the financial reports released. This could be due to reasons such as improved technical systems or improved employee proficiencies. Growth of property & construction revenue segment There is a strong focus on the â€Å"heartland† consumers and increased demand for housing, particularly in HDB flats, has led to opportunities that finance companies have leveraged on to cement their stake in this niche market. Although commercial banks also offer housing loans, finance companies are able to adapt each individual loan to consumer’s requirements because they enjoy greater flexibility especially for smaller loans that larger financial institutions do not want to accommodate to enjoy the relatively small returns. Looking at the breakdown of loans and advances of Finance Companies, we can see a large part is driven by the building and construction sector in Singapore, which was booming last yea. The building sector was driven by the construction of the 2 integrated resorts and a booming property market last year. A key driver of the industry, construction growth, which represents a large portion of finance companies’ interest income, grew at a rate of 20. 3% in 2007, compared to 3. 6% in 2006. The bull run in the property market, as mentioned, has also contributed to the sector’s good performance. Property agents have described in particular, the HDB resale market as the kingpin of the real estate sector. Projected unit sales are estimated to be at 30,000 by industry players. Average prices rose 17% for 2007. This, coinciding with a new government initiative to encourage singles to live with their parents by providing a grant of up to $9000, has led to a boom for the property market domestically in recent times. The government’s policy to target an eventually population size of 6million citizens would lead to an increased demand for housing as more and more immigrants look to plant their roots here. Thus, we can expect housing loans to continue to be a strong driver of performance for finance companies into the foreseeable future. Increase in SME initiatives The government’s initiative to increase SME competitiveness and promote entrepreneurship has also facilitated the expansion of this revenue segment for financial companies. The founding of organizations such as SPRING help to spur and stimulate the growth of target sectors for these financial companies. Initiatives such as the Micro Loan Programme under SPRING create direct market share for these finance companies for those who are rejected by the commercial banks for loans. A look through the Hong Leong Finance website shows at least 11 initiatives directed at SMEs alone. This shows the importance of this particular revenue segment to finance companies. Therefore, the future of this key driver of finance companies’ success looks to be rosy given the support that SMEs receive domestically from the government. It is also important to note that finance companies give incentives by positioning themselves as service providers for smaller enterprises who require greater flexibility in terms of financing requirements. As mentioned earlier in the report, this is due to the fact that it is uneconomical for commercial banks to process some enquiries and loans because they are uneconomical given the scale of operations. Summing up, the performances of finance companies have been exceptional with impressive growth figures. However, as the recession worries and full effects of the sub-prime issues slowly uncover, finance companies may yet be exposed to underlying issues that may influence performances in the near future. Next, we shall examine some of the trends in the finance company sector and try to identify key issues that may offer insights into what we can expect from these finance companies in the future given what we have already discussed. We would also examine a key player to try and gain insights into how these finance companies operate. TRENDS AND ISSUES IN THE FINANCE COMPANIES SECTOR: SINGAPORE 1. Consolidation within industry One of the most pervasive trends identified in the last decade in the finance companies sector is the consolidation of the industry. This is evident from the number of finance companies that have ceased operations. Some of these companies were forced out of the industry due to regulatory changes, while others, like OCBC Finance, simply merged with their principal companies. Since 1996, 19 finance companies have surrendered their finance companies’ license, with only 3 main finance companies remaining by the end of 2007. Accordingly, the assets and liabilities of finance companies as a whole have declined dramatically over the past decade, before stabilizing and increasing steadily over the past 3 years to around 10 billion dollars. Finance companies’ assets decreasing before stabilizing and recovering, and consolidation. 1. 1 Regulatory changes One of the catalysts for this consolidation is no doubt the regulatory changes that MAS has put into effect. Since December 1994, the Finance Companies Act was revised to raise the minimum capital requirement for finance companies from $0. to $50 million, and existing finance companies were given until 2003 to gather the required amount. This effectively meant that finance companies which did not have the required capital had to either merge with other players in the industry including banks, or raise the required capital. Hong Leong Singapore Finance, the finance company in Singapore today, is the result of such a merger between Hong Leong and Singapo re Finance. Examples of mergers with their parent banks include Maybank Finance, and Overseas Union Trust, which of course was subsequently absorbed into UOB. It could be argued that even without regulatory changes, mergers and acquisitions are inevitable for the smaller companies to survive. Regardless, the changes put into place by MAS has forced the industry to evolve into one with lesser, but stronger players. 1. 2 Increasing competition In 1998, then DPM Lee Hsien Loong remarked in a parliamentary session that the rationale behind these regulatory changes was to â€Å"enable finance companies to have the resources to compete more effectively and increase public confidence in them. Hence, another major reason for the consolidation in the industry can be attributed to the increasingly intense competition from commercial banks and other financial institutions which provide similar services. Loans and other services catered to SMEs, which the full banks typically deemed unprofitable, were traditionally the strong suit of finance companies. From data gathered on the 3 existing finance companies, loans and services to SMEs forms over 40% o f their portfolios. However, in the past decade, many commercial banks have started divisions to tap into the SME market made popular by finance companies. Finance companies thus now have to contend not only with each other, but commercial banks as well. This means that badly run finance companies simply could not contend with the competition and were targets for other finance companies’ acquisitions to boost their own ability to compete. 1. 3Niche markets Finance companies are usually able to compete with commercial banks because they offer services to niche markets (usually SMEs) which then form a large part of their portfolio. In today’s financial markets, Hong Leong Singapore Finance is known to target clients within the SME, consumer housing and the silver industry. Sing Investments and Finance has loans in the construction and property development sectors amounting to 68% of their loans portfolio. However, the population of such niche markets are usually much smaller than mainstream financial markets, and companies need to be able to capture a larger market share within the niches to be able to offer products with a competitive edge over commercial banks. Under the basic tenets of economics, this means that a only a small number of firms are needed to satisfy demand in such niche markets. Hence, there is necessarily a trend towards consolidation of similar firms within the separate niche markets in a ‘survival of the fittest’-style competition, which is the situation being faced with today. 1. 4 Global mergers and acquisition trends Mergers and acquisitions have been widespread and plentiful in recent times, and although this directly impacts the trend of mergers within the finance companies sector, there are also indirect effects to be discussed. One must consider that the increasing prevalence of large, merger companies necessarily means that the pool of smaller companies, of which finance companies cater to, is steadily decreasing. Such large merger companies usually go to commercial banks for the more sophisticated and diverse range of credit options which finance companies are simply unable to provide, either because of regulatory restrictions from the Finance Companies Act, or because they do not have the resources to do so. Again, this results in a net effect of finance companies having to merge themselves to operate effectively and efficiently to capture this diminishing pool of available business. TRENDS AND ISSUES IN THE FINANCE COMPANIES SECTOR: INTERNATIONAL International finance companies Unlike in Singapore, a legal definition of ‘finance company’ exists, there is no clear definition on what constitutes a finance company in the overseas financial markets. However, there is a general consensus that finance companies provide mainly lending services to consumers and small businesses. As with finance companies in Singapore, international finance companies typically target these clients that the major banks overlook, or have specializations in specific industries that make them more attractive to customers seeking credit services within these industries. Unlike Singapore, where only 3 such companies now operate, there are literally thousands of such companies overseas catering to different industries and customer bases, and it will be definitely be out of the scope of this report to discuss each one in detail. Also, the nature of the finance companies sector is such that they are more influenced by regulations and performances of industries within the countries in which they operate, and less affected by global financial trends. A simple example of this is in Singapore, where finance companies have been fairly shielded from the turmoil in overseas financial markets led by the subprime crisis in the US. Instead, they have been doing well, largely owing to the boom in the local property, auto and SME markets. It is thus more appropriate to examine the issues and trends of nternational finance companies in the context of the local markets which they serve, rather than to identify and global trends that affect all financial markets. Hence, we have decided to focus our attention on finance companies operating within 3 countries where financial markets are relatively mature and established, and whose activities are more transparent and in the limelight. These are Australia, Japan and USA. 2. Fin ance companies in Australia The finance companies scene in Australia is thriving, and has witness continued growth in the last 3 years. Another good year was recorded in 2006/2007 with both business and personal lending continuing to grow. Finance companies in Australia have long been a significant sector in the Australian financial services market, offering a wide range of products including business leasing, fleet leasing and personal lending. Such companies provide an alternative source of borrowing to the banks, building societies and credit unions. The two largest finance companies operating in Australia are Esanda and Capital Finance, which collectively represents almost 40% of the sector’s operating profits after tax. Some of the key issues which have impacted profits in the last 2 years include: ? asset growth of 7. 1% leading to an increase in interest income ? increased competition leading to reduced margins and fee income ? increased bad debts expenses ?reduced profits on motor vehicle lending 2. 1 Australia – Reliance on Auto Industry and Industry Trends The auto industry is a major driver of performance of the finance companies sector in Australia, no doubt because the majority of the finance companies are exposed to the sector. This may be in the form of lending to consumers and businesses to purchase their motor vehicles, financing auto dealers’ purchase inventories, or providing fleet management businesses. The growth of finance companies coincides with the auto industry’s boom in the past 5 years, with 4 consecutive years of record sales up to 2005. Provision of loans to purchase large cars dropped 18 percent largely due to the change in consumer purchasing habits from the price hikes in oil. Instead, smaller car sales were up 21 percent, contributing to increased revenues for finance companies. However, the increased affordability of new cars in the last 5 years has created difficulties for finance companies which provide fleet management services, such as BMW Finance and ORIX, since such companies suffer reduced profits on the sale of cars at the end of their lease. In recent times, the focus of many of the larger finance companies have shifted to diversification of services. This is similar to Hong Leong Singapore Finance’s strategy in Singapore, which is to take on the major banks at their own game, such as providing property and construction facilities. GE Money’s expansion into credit cards, mortgages and on-line savings provide another example of Australian finance companies’ diversification. Just as the finance companies are expanding their services to include services provided by major finance players such as banks, so are the majors entering into sectors traditionally dominated by finance companies. This includes areas such as lending secured on receivables, consumer and low-doc lending. This has increased competition among Australian finance companies, which is further crowded by new entrants such as Aussie Home Loans’ plans to target car and personal lending markets. . 2 Australia – Growth in Assets, Personal and Business lending Total assets of the finance companies surveyed increased 7. 1 percent to $37. 5 billion, slightly down from 8. 1 percent growth in the previous year, but this still represents a strong rate of growth. This trend has been observed for the past 4 years, and can largely be at tributed to lending growth in the business and personal sectors. Even though finance companies in Australia only accounts for 5 percent of total Australian loans and advances, their market share is considerably higher in traditionally key markets of business lending and personal lending. This is estimated to be around 10 and 15 percent approximately. Since finance companies in Australia are typically not exposed to the housing mortgage market, they are not affected much by the decline in the housing market that is being experienced in global markets. However, the quality of the assets seem to be an issue for finance companies. Total bad and doubtful debt expense increased 32 percent from 2006. Even when viewed in context in the growth of receivables, the ratio of bad debts to average receivables increased. Hence, unlike in Singapore, it does seem that Australian finance companies suffers somewhat from increase in credit losses. However, this is to be expected since finance companies typically engage in less secure lending to less credit worthy customers in exchange for a higher margin. It must also be said that the amount of credit losses increases pales in comparison with the subprime losses that major international banks have faced even with supposed tighter credit checks. 3. Finance companies in Japan In early 2007, the consumer finance industry of Japan was valued at a total of ? 0 trillion with annual growth of 4%. The key factor influencing this previous growth in the industry might be traced to the equity and real estate bubble burst in the early 1990’s which lowered the collateral of several consumers. This provided a large market segment seeking uncollaterized loans, which were only provided by the consumer finance companies. At the same time, consumer finance companies had an advantage over the banks as they had a wider network of loan offices and had a reputation for quicker loan approval. 3. Japan – Regulatory elimination of ‘grey zone’ lending Significant change is expected in the consumer finance sector of Japan, as new regulations affecting consumer finance companies were passed in December 2006, and are to be withheld by the year 2009. The main crux of the new regulation would be that it lowers that maximum allowed interest rate chargeable on uncollaterized consumers. While the interest rate cap on consumer loans were capped at 20% by the Interest Rate Restriction law, the Capital Subscription law stated that a rate of 29. 9% could be charged, in the event that a written consent to the charges was provided by the consumer. Due to this law, several consumer finance companies in Japan have been providing loans to poor credit clients, at interest rates charged within the ‘grey zone’ (20%-29. 9%). What this new legislation entails would be that these consumer finance companies will need to adapt and reinvent themselves, as they can no longer depend on the ‘grey zone for survival’. What can be expected would be shakeout of the smaller consumer finance companies, consolidation as well as diversification of products. 3. 2 Japan – Regulatory Changes The Japanese Diet revised legislation regarding the Money Lending Business (MLB) law. A previous ceiling of 29. % for consumer loan interest rates set by the Capital Subscription law was repealed and reduced to 20%. This coincides with the ceiling set by the Interest Rates Restriction law, which has an interest rate cap of 20% per annum for such loans. Even then, this cap is only applicable for loans of up to ? 100,000 and below. Fo r loans with principal amounts ranging between ? 100,000 and ? 1,000,000, the cap is only 18% per annum. Loans with principal amounts over ? 1,000,000 are charged a maximum interest rate of 15% per annum. At the same time, the Bank of Japan has in recent years opted to abandon their zero-interest rate policy. At the moment, their interest rates have been set at 0. 5%. It is yet to be seen if there will be any increase in this rate, as it will probably depend on the performance of the Japanese economy as it adapts to this change, as well as the USA downturn. But essentially, with the bottom line raised and the top lines lowered, consumer finance companies are seeing their margins diminishing. The amendment also includes tighter entry restrictions for consumer finance companies, return of excess interest payments made to consumers, as well as restricts the maximum debt a consumer may hold to only one-third of his annual income. At the same time, the lid has been left open for more restrictions to be implemented between now and 2009, during which enforcement for the new regulation is going to be implemented. 3. 3 Japan – Effects on Performance In response to the new legislation, the industry has been suffering since. An estimated loss for the combined consumer loan sector for the fiscal year of 2006 has been made at ? 3 trillion. This can be directly attributed to the diminished market segment as well as several requests for refunds of excess loans from existing consumers. With stock prices of the 4 major players in the industry tumbling even before the announcement of the December 2006 ruling, mostly as a pre-emptive reaction, the situation is dire. This has left the consumer finance companies with the option of either leaving the market, or restructuring themselves to suit the new environment. The two main strategies for remaining in the sector would be expansion and diversification. 3. 4 Japan – Expansion At moment, there is estimated total of 10,000 registered money-lenders in Japan. Of these, there are only 4 major players (Aiful Corp. , Acom Co. , Promise Co. Takefuji Corp. ) that are currently listed on the Japanese stock exchange, whilst the rest are all individually casting small shadows. However, considering the increased requirements for operations as well as the diminished margins, it is now harder to maintain operations as a small player. More sophisticated risk management and cost-cutting are all necessary aspects that need impleme ntation for survival. It is expected that a large proportion of these smaller companies will eventually consolidate to be able to mount a substantial fight for survival or be forced to cease operations. Current estimates are that the eventually, Japan will only be left with 3,000 consumer finance companies. Already, that trend is starting to take shape. The current estimate of 10,000 registered money lenders have already dwindled from a previous figure of 14,000 as of February 2007. Two of the larger players, Acom and Promise have also taken a step further than anyone else in the industry, by negotiating partnerships with major banks, Mitsubishi UFJ Financial group and Sumitomo Mitsui Financial Group respectively. This strengthens their competitiveness, as these consumer finance companies will be able to provide the bank with their expertise in handling smaller and riskier consumer loans, whilst the banks will be able to support these companies as they transcend into a more developed state. 3. 5 Japan – Diversification of Products Traditionally, the Japanese consumer finance companies could be classified into two main group; those dealing in consumer loans; and those providing credit card services. While the former group has been hit hard directly by the new regulation, the latter has been relatively unscathed. The main reason would be that interest rates for credit cards were already below the 20% limitation. Consumer finance companies are now finding that there is an unexplored market that they can now explore, to make up for their losses in the consumer loan segment. To compound incentives for this strategy, the credit market has yet to truly blossom in Japan yet, due to a prior preference for cash instead. For example, credit card shopping only accounts for 10% of consumption in Japan, and this is relative to the 25% figure for the United States. 3Finance companies in USA There are many companies in the USA which provide consumer and business finance services in all sectors of the financial markets. Being the world’s largest financial market, USA has a very diverse group of finance companies that cater to auto, personal, small enterprise, insurance, and mortgage lending, among others. Citi Financial, HSBC Finance, GE Money, Prudential Finance, Zurich Financial, and Capital One are just a few examples of such finance companies. Just as in Singapore and other nations, these finance companies typically serve clients who are either too small or have poor credit ratings to obtain loans from the larger banks. The consumer finance industry in the USA is too large to be discussed in full detail in this report. Hence we will only be discussing a particular type of finance company which in the past year has come under scrutiny from all corners of the financial markets – subprime mortgage lenders. While major commercial and investment banks have all taken in losses amounting to USD 170b from writing down Colleteralized Debt Obligations and Mortgage Backed Securities, mortgage finance companies in the USA have mostly been responsible for the origination of such losses. 3. 1 USA – Subprime mortgage lending by finance companies Subprime mortgage lending by finance companies enabled consumers in the USA with poor credit histories to obtain loans to purchase homes with higher interest rates than that charged by banks. These consumers were previously unable to obtain such loans from the major banks and lenders due to their poor credit histories. To entice consumers to accept such higher interest rates, these finance companies typically include ‘teaser rates’ during the initial periods of the loan where the interest rates were lower, and the rates were then subsequently increased significantly after the introductory period. Because many consumers could no longer afford the high interest payments after the introductory period, many were forced to refinance their subprime loans with another subprime loan. This was acceptable pre-2005 since housing prices were on the rise, and this meant that home owners were building equity which enabled them to refinance loans easily. However, after 2005, home prices started to decline and fell below the value of the loan, and thus could not be used as collateral for refinancing. A steep rise in defaults and foreclosures caused more than 100 finance companies in the US to file for bankruptcy beginning late 2006. Even New Century Financial Corporation, then the nation’s second largest mortgage lender, was not spared. Excessive risk taking and making loans to subprime customers meant that such finance companies were exposing themselves to moral hazard excessively. 3. 2 USA – Securitization of subprime loans Many a subprime finance company did not actually hold on to the subprime loans as assets after making them. Instead they securitized, or sold off the loans to issuers and special purpose vehicles. These financial vehicles bought these loans and other investment grade instruments and repackaged them into the CDOs and MBSes that were to blame for the credit problems in financial markets today. These instruments were subsequently bought up by investment and commercial banks, and hedge funds, due to the impression that the risk from the subprime loans have been adequately spread out. However, this was not the case, since once defaults and foreclosures started to hit the issuers, the values of the CDOs were compromised, resulting in huge write downs by banks. What followed was a large credit crunch in financial markets, the effects of which are still unresolved today. Hence, what was supposed to be a mortgage finance sector problem has been spread to all areas of the financial markets through loans securitization, which was started by finance companies in the US. Regulatory Issues The Finance Companies Act (Cap. 108) was established in 1967 to regulate the growing finance companies sector. Listed in the Act are several restrictions that limit the activities of the finance companies. The purpose of these limitations is to protect investors, by controlling the exposure of the company to riskier asset classes and transactions, since finance companies are less able to diversify such risks away than the major banks. These limitations may include capital structure requirements, restrictions on dealings, necessary approval for expansion and others as well. In essence, the provisions within the Finance Companies Act require that finance companies seek MAS for approval to engage in activities other than the most basic lending and depositing services. Since the major banks have a similar set of banking rules and regulations to adhere to, we will be focusing our discussion on a few key regulatory provisions which are specific to the Finance Companies Act. One regulation of particular interest has already been briefly mentioned in the previous sections of this report. In s7 of the Finance Company Act, there are strict capital requirements in place for finance companies. S7 provides that a registered finance company will need a minimum of $50 million in issued and paid up capital. What this requirement does is to limit the industry to only the stronger players. This requirement, as put in place since January 1995, might be responsible for the running out of the several smaller finance companies, and serves as well as a substantially high barrier to entry. S23 of the Finance Companies Act lists out some of the prohibitions of dealings by finance companies. In particular, s23(1)(e) and (f) aims to limit the amount of risk which the finance companies are able to take. This is done by restricting the issuance of substantial loans which exceed 50% of their total credit facilities, and also by prohibiting unsecured loans and advances exceeding S$5,000. It can be seen from these regulations that MAS understands the higher risk nature of the customers served by finance companies, and tries to protect both the customers and the companies from over-exposure to such risks. While s23(1)(b) prevents investments in foreign currency, gold and other precious metals, and s23(1)(c) prevents any acquisition of shares, stock, debt and other convertible securities in foreign denominations, exemption from these restrictions might be granted as stated under s23(2)(a)&(b). S23(2)(a)&(b) states would be that concessions in these aspects might be granted depending on the ruling of MAS. Furthermore, s53 gives room for the authorities to exempt a finance company for some or all of the provisions in the Act. We feel that this shows that MAS recognizes that not all finance companies are ready to take on such dealings yet, but that they are not shutting the door on such transactions in the future. Prospects & Future developments of Finance Companies Effects of the credit crunch In the short run, we would expect that finance companies would experience a udden growth in their revenue segments due to commercial banks tightening credit. The sub-prime meltdown in the United States has severe implications for all industries. However, rather than affecting the finance companies negatively, we foresee that there is a possibility that they might profit from it instead. With several banks being hit severely, we are currently observing the beginnings of a credit crunch as banks start to tighten their credit and adopting a more conservative stance in negotiating loans. This would even be true in Singapore, as we uncover the extent of Asian banks exposure to collateralized debt obligations. DBS Bank has already booked S$200 million worth of write-downs while UOB has S$45 million worth of write-down. These commercial banks have reportedly tightened credit measures with more reluctance to take on risky debts. What this might imply would be that more consumers will have their loan applications rejected from banks, and will therefore look to finance companies for their capital needs instead. At the same time, the market for loans is expected to grow by 13% in 2008. While this is lower than the 20% growth recorded in 2007, it represents that the market is still expanding despite the tightening of credit by major lenders. At the moment, the total loans made by finance companies are sitting at S$8,389 million. The total loans made by commercial banks, however, stands at S$201,424 million. The above figures indicate that if banks were to lose even a small percentage of their market share in loans to finance companies, this would translate to a potentially significant percentage of loans growth for these finance companies. Hence, if finance companies are able to take advantage of the loss in confidence of the banks, and the tightening of credit by said banks to capture the market left behind by the banks in the wake of the sub-prime crisis, there will be room for growth. Consolidation of the segment In the long run however, we adopt a more pessimistic stance towards the development of finance companies. One of the trends that we mentioned was that of consolidation of the finance companies in the past decade. Three such finance companies remain and have performed relatively well over the past few years or so. However, commercial banks are encroaching into traditional strongholds of these finance companies, such as SMEs and smaller personal loans which were once considered unprofitable to service. This is as commercial banks now want to profit from the higher yielding consumer base that these finance companies rely on as they continue to look into other profitable segments that they have neglected in the past. DBS, OCBC and UOB have in the past decade started moving towards these opportunities that they had forgone in the past. There is also increased competition from new entrants such as GE Money and SingPost who now offer consumers more consumer finance choices instead of the remaining 3 finance companies. This increased competition may reduce revenues in the future, especially for Singapura Finance and Sing Investments, since Hong Leong is far and away the major player in this sector and may be able to better cope with these changes. These 2 smaller firms might find it more difficult to continue to perform as well when banks use their financial muscle and influence to try and break into this market. Thus, we foresee a real possibility of further consolidation and perhaps a change in the structure of the future finance company here in Singapore. Hong Leong Finance is special, in the sense that it is much bigger than the other finance companies in the scene. To brand it as a finance company in the same breath as the other 2 does not do Hong Leong’s reputation justice. However, when compared to the commercial banks, they still do not measure up as significant competition. The other 2 finance companies seem to stand little chance should the commercial banks and corporations start infringing on this niche segment that they have survived on. The implications of these is the sign that the finance companies are in a sunset industry and with the exception of Hong Leong, finance companies might struggle to eke out an existence once competition gets more intense. It may revert to a situation where the smaller firms have to merge or be acquired by a larger finance company, in this case, Hong Leong, or risk not being able to survive in the segment. Hong Leong, as mentioned, is unique in the sense that it is such a dominant force in the finance company sector, but yet unable to make the step up to be on the same level as even the smaller commercial banks. In the near future, we could see Hong Leong forming an entire classification on its own, as the alternative to the commercial banks. Following the entry of commercial banks and other competitors into its traditional revenue segments, Hong Leong has been actively looking for other opportunities to diversify its revenue generating segments. We have mentioned some of these earlier in the report. Recently, Hong Leong was commissioned to take up underwriting duties which provides it with a new area of development where they could vary their income sources. It has also established a wealth management arm in light of the growing sector in Asia as a whole.

Browning Peal Essay

Browning PEAL Essay Robert Browning uses many techniques one such example being his continuous reference to women being similar to roses. Browning uses the imagery of roses throughout the poem to represent women and femininity. It is a common practice in literature for poets to refer to women as flowers, in particular roses; such as Browning has done in ‘Women and Roses’. This is because they represent natural beauty that has been created by God, which compliments the woman Browning is talking about because it shows his feelings on how he believes they don’t have to try to be beautiful.Roses also represent love and passion, the colour red is an intimate colour that represents seduction and sometimes danger as seen in ‘Of Mice and Men’ where Curley’s wife is referred to as having â€Å"full rouged lips† and â€Å"red fingernails†. The thorns on roses continues this theme of potential risk, because the simple idea of men picking ros es for women could injure the man due to the thorns on the stem, this could represent how men have to fight past the hard things in love to get to the beauty or the woman.In ‘Women and Roses’, Browning also uses roses as a representation of the stages through a woman’s life going into womanhood and how she grows from a young shoot full of promise to something incredibly beautiful and natural and eventually to an old and wilted flower, â€Å"bees pass it unimpeached†. The poem is about finding perfect love with a woman, which is represented as finding a rose with no thorns, thorns being the trouble in a relationship or a woman.Browning wrote ‘Prospice’ after his beloved wife, Elizabeth Barrett Browning, died in 1861. The poem shows Browning’s beliefs on death and how he feels that he will once again be reunited with his love in the afterlife. The title ‘Prospice' can be translated as ‘look forward’, and in this poem, p ublished in 1864, Browning is most likely looking forward to death, when he expects ‘I will clasp thee again’, meaning he will be with Elizabeth once more.Such optimism seems to contrast noticeably with the religious doubt or searching of many Victorian writers. But Browning does not claim that there is anything easy about facing death, instead he shows one way of coping. He gives the ‘Arch Fear’, death, a ‘visible form’ so that he can imagine taking him on in one last fight to show that he will not be taken easily, ‘Barriers’ and ‘guerdon’ suggest a tournament took place. In ‘A Woman’s Last Word’ Browning uses Roman numerals to show the breaking down of a omplex subject such as a woman’s feelings after an argument. By doing this it makes it easier for the reader to follow and distinguish the different stages of feelings the character goes through and also shows the changes in direction of he r attitude until she reaches submission towards her love. This is a good technique used as he wrote the poem from a woman’s point of view and has gone into a lot of detail on how she feels and reacts to the argument.

I Was Seeing Red - 1215 Words

Was this really what my life was going to be? I have hopes and dreams like any other ordinary person. I’m just not allowed to fulfil them. In the end I suppose all my life I knew my fate was sealed. I just never wanted to accept it†¦ ever. It was the evening my parents called me round for dinner that I knew it was coming. The only time my parents invite me round is if it is a special occasion.However, was it special or considered an occasion to me? No. There we were sat around the dining table both of them staring at me with a beaming grin. It was worrying. I wasn’t sure how to react when I first found out. I was hoping it was a terrible joke or dream, well nightmare, anything expect for real life. I was getting married†¦ m-a-r-r-i-e-d. Married. It’s meant to be the happiest day of your life. So why did I feel so sceptical towards the idea. Perhaps, it was due to the fact it was going to be arranged? 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