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The £10 billion profit opportunity

Proxima
Sep 18, 2012 9:18:00 AM

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How smarter cost management can help the FTSE 350 delight their shareholders

Business has changed. Since the last major recession, we’ve seen the rise of globalisation, the internet has become all-pervasive and assumptions about the strength of our financial systems and governments brutally undermined. Management teams can no longer rely on the tried and tested methods for working through a tough economy.

 The challenge for corporate leaders, then, is finding and employing innovative means of protecting enterprise value – not just cutting costs. Shareholders, starved of returns and concerned about the future, want their capital working harder.

This research report outlines a huge opportunity to do precisely that. Our analysis is based on all the financial reports from FTSE 350 companies between 2008 and 2011. It reveals that businesses spend, on average, two-thirds of their revenue on non-labour costs – 68.3% in 2011. This far outstrips their collective labour costs, which averaged just 12.9% of their revenue. Yet headcount reduction is traditionally seen as the best way to tackle cost. This raises a number of questions:

  • Are businesses ensuring that their non-labour cost base is being effectively managed?
  • If not, why not?
  • And what are the potential benefits of making that investment?

Highlights from this paper:

  • Non-labour costs outstrip labour in the FTSE-350 by five times
  • 1% reduction in non-labour costs can increase EBITDA by 3.6% while the same reduction in labour costs only boosts EBITDA by 0.8%
  • Survey of 275 senior finance leaders illustrates mis-match between management aspirations for procurement and cultural constraints to achieving those aims
  • Improved cost base management offers an untapped alternative opportunity to reassure shareholders via managing the bottom line as opposed to just growing the top line

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