By Daniel Hunter
Research on the finances of 134 AIM-listed companies by accountancy firm, SKS Business Services, reveals a surprising leap in spend on non-core operations that has more than wiped out their profits.
The in-depth study of 670 small cap financial reports shows that costs relating to non-core operations such as finance, legal and rents have soared 22 per cent in one year from an average of £5.2 million in 2011 to an average of £6.4 million in 2012. These general and administrative (GA) costs have increased 40 per cent in the last five years while profits over this time have fallen from an average of £9.6 million to an average loss of £0.8 million last year.
Firms operating in alternative energy and chemicals spend the greatest portion of their revenue on GA expenses, while food producers and construction companies have their non-core operational costs most in check.
Out of 134 of the AIM listed companies only three have management discussion and analysis (MDA) reports. In these reports, GA is only mentioned with regards to an increase in costs, rather than in terms of looking for a reduction. Although AIM listed companies do not require MDA reports, it would suggest that in some cases, GA is not properly managed.
SKS Business Services estimates that these companies could reduce their GA costs by up to 20% per cent just by restructuring their finance function and through a smarter use of outsourcing.
“There is compelling evidence here of endemic over-spend on non-core operations such as the range of financial and professional services,” said Sanjay Swarup, Director, SKS Business Services.
“Declining profits should call for belt-tightening, but these smaller companies seem to be developing puppy fat when costs could easily be cut from their GA functions without reducing the quality… continued on page two