Wednesday 26 June 2013

When the Buyer wants to negotiate via your local annual report

The growing sensitivity re. corporation tax compliance has made the issue of local profitability a talking-point, and thereby increased the possibility of challenges in negotiation.

B:   Following our last discussion, I downloaded a copy of your global annual report from your site and a copy of your UK report from Companies House, cost me £1, which I would like to see reflected in your trade terms…

S:   Fine, no problem with crediting you with £1, I can take it off the refund allowance because of your Hounslow branch non-compliance last month..Seriously, have you had time to read the reports?

B:   ...well a few things stood out: First, I had not realised that your UK operation was so small, it looks like we represent 45% of your business – we need a bit more support

S:   As it happens, a couple of our high-compliance partners are supplied direct from our French business, which helps them get faster replenishment. This means their purchases do not appear in our local figures. Incidentally, this is an option available to yourselves, providing we can tie down promotional execution a little better. Any other points you would like clarifying?

B:   Well it looks like you give an average 30 days credit in the UK, yet your global figures show 45 days, you seem to be taking advantage of your UK customers, and us in particular at just 28 days

S:   First of all, in common with many global operators, we offer different total packages I different countries including national average trade credit of 50 day in France, 90 days in Italy and 150 days in Greece!  But each country has different trade margins to compensate

B:   OK, explain our UK position

S:   As far as the UK is concerned, we can look at debtors in more detail.  Glad you have your calculator handy. I know you were in a rush before the meeting and you probably the Debtor figure of £7.5m off the P&L, and on that basis against our UK sales of £900m, we give an average credit of 30 days. [£90m/£7.5m = 12.    365/12 = 30 days]. But if you notice the Notes13 beside the Debtor figure and turn to that Note at the back of the accounts, it explains that Debtors of £7.5m is made up of Trade Debtors of £6.5m  and other debtors of £1m.

B:  So we are one of the Trade Debtors?

S:  Yep, and if you run the same calculation on that basis, it shows an average credit of 26.4 days, so you are getting a little longer to pay, with your 28 days average…

B:  The big surprise was your 9.5% net margin in the UK, vs. our margin of 3.4%, we need some of that

S:  I wondered how long it would take, but it stands to reason, given that it comes at the bottom of the P&L… You remember our pre-Christmas negotiation when we focused on relative profitability, well that that was when we agreed why the difference was down to our different business models  (See here)

Buyer:  I also notice that you are sitting on loads of stock, compared with this time last year, moving from a stockturn of 8 times a year down to 6 times a year, effectively 2 months stock [ sales/stocks = stockturn.    365/Stockturn = number of days stock]

SuperNAM:  Great, that’s really why I came to see you. We are building stocks of our new line because early response indicates a surge in demand.  Let’s discuss how we can use that to make us both some real money…

Adventures of SuperNAM (21)

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