Working capital delays puts companies’ profits at risk

The uncompromising report, compiled by Hackett-Rel, highlights the fact that
working capital remains a serious problem for businesses, despite their lofty
perches in the FTSE 350.

Hackett’s survey analysed Europe’s 1,000 largest companies and uncovered
troubling statistics as it showed some businesses had to spread their resources
very thinly over a long period of time, causing major headaches for FDs and
their staff.

Hackett’s data, prepared for Accountancy Age, shows that Bovis Homes had
among the worst problems. The company had a days working capital (DWC) figure of
497.9 for 2005, signifying the number of days their working capital would last
before investment returns would come in.

The FTSE 250 company turned over £759m in 2005.

Other poor performers included Imperial Tobacco at 198.6 and Signet Group at
210.4.

The figure gives a direct correlation between a company’s net working capital
and its sales per day. Simply put, the lower the value for DWC, the less
pressure exerted on the company while waiting for profits to materialise.

Across a number of sectors, including advertising, aerospace, home
construction and the tobacco industry, businesses are clearly having to think
long-term as working capital becomes a millstone around their necks.

Hackett said that the relationship between the buyers and suppliers played a
significant part in a company’s financial health. Top performing companies often
had their suppliers over a barrel, raking in profits, while invoices were
outstanding.

Andrew Ashby, President of Hackett-REL Europe said: ‘A strategic approach to
working capital improvement will yield greater sustainable long-term results,
than the potential short-term impact gained from squeezing suppliers.

‘Our view is that treating suppliers as you would expect to be treated by
customers will yield long-term benefits, especially in periods of an improving
economic outlook. This is certainly the case when you need to call upon those
suppliers to fulfil periods of high demand. The success of your business then
becomes reliant on their flexibility, which is tied to your working
relationship. If your behaviour towards them has historically been adversarial
then they are unlikely to sympathise or respond to your needs.’

COMPANY REPORTS

Major sell off

Barclays’ has sold off a major arm of the business to a US company. As the
banking heavyweight prepared to offload the UK and Germany arms of its vendor
finance businesses to finance firm CIT Group Inc, group CFO Naguib Kheraj, said:
‘This transaction leaves Barclays Asset & Sales Finance well positioned for
its future development.

Significant investment will be focused on its core asset and sales finance
business including the ongoing expansion of its successful direct leasing
business. The future strategy of the vendor finance businesses is now best
pursued within a specialised leading global provider of asset finance
solutions.’

The gross assets of the UK and German operations came to around £1.1bn as at
30 June 2006, about 12% of Barclays’ total gross assets. Almost 60% of the
assets to be sold came from UK activities, with the balance in Germany. The
completion of the sale depends on clearance from the relevant regulatory
authorities and is expected to close at the end of 2006.

High earners

A survey by Deloitte has found that the salaries of company directors at the
UK’s biggest listed companies rose by an average 6.8% over the past year.
According to the firm, a FTSE 350 executive director is now paid an average
salary of £350,000 a year, up by £23,800 in 2005.

The rise is slightly more than last year’s 6.5% and ends a five-year decline
in salary growth rates. The results show that senior executives are stretching
even further ahead of the overall workforce, where pay rose by just 3.9% on
average. Bill Cohen at Deloitte, said: ‘While these higher bonus payouts may ra
ise eyebrows, it is important to look at the performance of the FTSE which, over
the same period, increased by 18% compared with 9% the year before.’

Clipping its wings

The chief executive of airport operator BAA has warned that a green tax on
flying will damage the economy and will not have the desired effect on the
environment. Speaking at the Conservative party conference, Stephen Nelson
claimed a carbon emissions trading scheme was the best option for mitigating the
environmentally damaging effects of flying. ‘A tax to price people out of flying
would not deliver the required environmental result. It would also damage
people’s quality of life,’ Nelson said.

According to Nelson, an emissions trading scheme would be effective and
popular. Support is growing for a further tax on flying with airplanes
accounting for 2% of global carbon emissions, which is expected to rise to 15%
by 2050, according to reports.