Banking

Review annual reports to uncover future work

While the path to a new contract may not be as plain as the nose on your face, it can be as obvious as the annual report right under it. Here's how one consultant read a client's annual report and turned its information into a new contract.


Whether you work for a consulting company or are an independent contractor, you must always keep an eye out for where the next dollar will come from. Often, however, your time is torn between servicing existing clients and generating new income streams, with one of the two tasks ultimately suffering.

As any business developer will tell you, it is far easier to get work from existing clients than it is to cold-call new prospects. With this in mind, I’ll outline an often-overlooked source of information that could lead to income generation: the annual report.

My company’s strategy
My boss asked me to gather as much information as I could on the operations of one of our firm’s clients, a bottled water delivery company for whom we had been performing an annual financial audit. He felt there was potential for more work, believing the business could make improvements in the manufacture and delivery of bottled water. My task was to find out whether that hunch was right.

I investigated the company’s annual report. Since it was a publicly listed company, I knew that it was obliged to reveal information about its operations to shareholders in the report. I expected to find information on operational costs, executive management, and how well the company was performing compared to previous years.

What the bottler’s annual report told us
On the company’s Web site (many companies now make their annual reports available on the Web), I discovered a wealth of information in the last two annual reports (see Figures A and B).
Figure A
 
2000
2001
2000 percentage
of revenue
2001
percentage
of revenue
Growth from
2000
Change in percentage
of revenue
2000-2001
Revenue
$85,559
$99,156
100.00%
100.00%
15.89%
0.00%
EBITA
$27,600
$31,650
32.26%
31.92%
14.67%
-0.34%
     
0.00%
0.00%
0.00%
0.00%
Sales
$9,309
$11,405
10.88%
11.50%
22.51%
0.62%
Distribution
$14,961
$18,423
17.49%
18.58%
23.14%
1.09%
Administration
$16,223
$17,529
18.96%
17.68%
8.05%
-1.28%
Marketing costs
$7,163
$7,980
8.37%
8.05%
11.41%
-0.32%
Depreciation and leases
$10,352
$12,132
12.10%
12.24%
17.20%
0.14%
Total costs
$58,007
$67,469
67.80%
68.04%
16.31%
0.25%

 
Figure B
Year
Approximate number of customers
Delivery cost
Cost per customer
2000
131,100
$14,961,000
$114.12
2001
148,143
$18,423,000
$124.36

I don’t have an accounting degree, but the numbers immediately told me some key points:
  • Distribution costs were the largest expense, having outgrown administration costs.
  • Distribution costs were the fastest growing expense at 23.14 percent compared to the previous year.
  • The cost per customer had increased by $10.

For some reason, economies of scale were not applying to the costs to delivery: Administration and marketing costs had fallen relative to revenues, but distribution costs were increasing. If this situation were not addressed, the profitability of the company could be affected and shareholder confidence shaken. It appeared that my boss was right: There was an opportunity to review the water company’s operations and to possibly reduce its costs of operation.

Next, I tried to find out as much as I could about the current delivery practices. With a few phone calls, I discovered that each morning the delivery drivers were given a sheet of paper showing which residences and businesses needed water bottles. The drivers then distributed the list amongst themselves. This seemed like it had the potential for improvement.

I began searching for automated delivery solutions and soon came up with a number of software products that would allow the company to manage its delivery vehicles and automatically create optimized route maps for the water delivery.

After selecting the most appropriate software for the task, I approached the software manufacturer to obtain case studies of similar companies employing its software. Motivated by the possibility of a sale, the manufacturer produced case studies and offered to give a live demonstration of the product.

Approaching the client
Armed with the case studies and our analysis, my boss presented our case to the water delivery company. Management was so impressed with our identification of both the problem and the solution that they contracted us to perform a more in-depth analysis and to recommend a solution.

The water delivery company was happy because its operations were being improved, which would lead to a healthier bottom line and happier shareholders. We were happy because we had secured work and had solidified the relationship with the client. Moreover, we had established a relationship with a new software manufacturer, which could potentially lead to more income for us in logistics analysis and more software sales for them.

Bottom line
If you are dealing with or plan to engage a public company, consider its annual reports for information about its operations and to determine where you can help the company run its business better. Along with insights into the company’s financial situation, the reports will give you an idea of the company’s future plans and a clearer picture of how you and your company can be part of it.

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