Expense Reduction Analysts’ Business Newsletter
Understand and harness your
IT assets for savings of up to 35%
IT: GARETH EVERSON Also in this issue
One of the core fundamentals of productivity and, in the longer term, Rising fares for air
business finance is the concept of become less competitive as a business. travel proliferation
capital productivity, the measure of As one of any organisation’s most of fees, plus capacity
how successful a business is at driving significant operational costs, IT is a reductions, will dominate
sales from the net assets at its disposal. critical driver of capital productivity. the airfare market
Decisions on managing IT assets all in 2009 Page 2
Any business faced with unpredictable too often, however, fail to reflect the
turnover that has neither the means to same level of economic prudence that Credit Crunch fuels soft
effectively and appropriately reduce costs an otherwise effective business would insurance market
nor, alternatively, to drastically improve achieve in its other operations. An The Insurance market is
productivity, faces a very strong likelihood appropriate Technology Asset Review easing with falling rates
that it will face a downward spiral of capital (TAR) can help redress that balance. for businesses.
Continued on page 2 Page 3
Commercial rents of
Strong growth for the
retail sector property
rates and a potential drop
in rental values to come. Page 3
European Truck makers
sales hit the road!
A dramatic change for
truck makers as a decline
of 40% sales hits the
logistics market. Page 4
Company cars – capital
Time is running out
to take action!
mean lower costs Page 5
“Organisations that implement an effective for company fleets.
asset management strategy realise savings Savings for Zavvi and
Winning profits for
of up to 35 percent of their IT budgets and Harvey Ingrams.
achieve more with those assets.” Page 6
find extra profit
Understand and harness your IT assets
for savings of up to 35% continued...
IT: GARETH EVERSON
If your business answers ‘no’ to any of the • Does the business constantly review the Few organisations completely synchronise
following 3 critical questions, it may make technology throughout its lifecycle to IT, finance and procurement departments
prudent economic sense to conduct a formal determine if there are ways to improve to operate with total transparency, clarity
technology asset review: its value to the business? and integration with one another. Effective
technology asset management is a means
Evidence shows that slashing capital invest-
• Can the business calculate the true net to help businesses do this and maximise
ments is no more an appropriate response to
asset value of each particular software, the return from historic and future IT
declining capital productivity than is spending
hardware or infrastructure asset, measuring investments with minimal ongoing or
heavily on new technology, nor is it viable to
that asset’s tangible or intangible asset unbudgeted costs.
do little or nothing to improve the return on
value against its ongoing operational costs
each of a business’s existing IT capital assets. Gartner believes “organisations that
and maintenance liabilities – or is the
implement an effective asset management
business’s understanding limited to the IT costs have risen by 11% this year
strategy realise savings of up to 35 percent
straight-line depreciation value that (source: Gartner). The last quarter has seen
of their IT budgets and achieve more with
appears on its balance sheet? hardware sales up by 16% year on year
(source: IDC). Energy costs, despite having
• When the business makes IT procurement
shown recent falls since they peaked in July Conducting a thorough Technology Asset
decisions, is there a clear business
2008, are still 45% higher than they were Review will allow your business to
valuation process that all stakeholders can
in November 2007 (source: ICIS Heren). appropriately plan to retain or improve
understand that gives a measurable and
capital productivity performance despite the
objective view of how the investment will Is your business taking appropriate
unpredictability of external trading conditions.
impact the capital productivity of the investment precautions to get the most
business – over the lifetime of its use? effective return on assets?
Rising fares for air travel
TRAVEL: DEREK HODD
European based business travellers face
…additional service fees will create
air-fare increases of up to 9% next year:
travel budgets will need to be viewed as new challenges for corporate travel
an investment in business growth.
Prices will be influenced by
reduced capacity and
competition, with reductions
in air-fare and hotel rates in some markets,
according to the annual American Express
Global Business Travel Forecast. UK
companies may see rises of up to 2%, but
businesses can expect up to an additional This will have a ripple effect in other areas
15% added to base fares as a result of of travel including hotel, car rental and
airlines continuing to un-bundle services such corporate meetings and events.
as checked luggage, in-flight refreshments
Amex Business Travel advisory services
and fees for amenities such as aisle seating.
vice-president Joakim Johansson observed:
Charging fees for different services came “To help mitigate the impact of these new “In a difficult economic
as a response to the record energy prices in charges, already seen in the US, we advise environment, successful travel and
2008. This proliferation of fees, plus capacity companies to consider increasing their entertainment management strategies will
reductions, will dominate the airfare market focus on demand management to ensure be based upon the total cost of a business
in 2009 and create a significant need for planned trips meet the guidelines designed trip, which takes into consideration such
companies to establish and clarify, or create, to promote the most effective use of their costs as parking fees, airline fees, meals and
new policies for their business travellers, business investment.” other related expenses.
according to the report.
He added: “With costs rising, business “Effective measurement of the return on
As suppliers adjust to rising operating costs, leaders are recognising the need to balance that investment will supplement the savings
additional service fees will create new travel and entertainment spending with achieved by controlling travel expenses through
challenges for corporate travel program the role travel plays as an essential comprehensive travel policies and increased
managers in 2009. revenue-generating function. policy compliance by business travellers.”
Credit Crunch fuels soft insurance market
INSURANCE: SCOTT INGHAM
Hot on the heels of this was the increased appetite for placing insurances
realisation that a number with traditional insurers who do not have
of insurers and in involvement in the more alternative
particular the AIG insurance products market.
had a mind-boggling
The outlook for insurance costs for business
level of exposure to
continues to be positive with falling rates
for most classes, with broadening cover
availability, mainly due to the absence of
which, if triggered,
large global weather losses and overall a
could result in a catas-
very profitable period for the insurance
trophic chain reaction
market. Average premium savings which
with no identifiable end
should have been easily achieved by
point. Luckily for AIG,
organisations in 2008 are 15 -20%, with
several other insurance
the effective management strategies being
companies and our economy,
applied to the renewal process, this could
their respective governments
readily be increased to 30-40%, and clients
have stepped in to prevent
Despite the financial problems who are coming to the end of a long term
that have befallen AIG, one of insurance agreement have seen savings
the most highly rated global At present, it is still business as high as 50-60%.
insurers, this is unlikely to as usual with AIG and there
change the progress of the has not been the
insurance market in its continuing
reduction in insurance rates. The
expected rush to
replace insurances with
initial impact of the subprime alternative providers.
mortgage revelations was to in insurance rates.
send investors towards what However, the situation
was regarded as a safer and
more structured risk taking
…increased appetite for
market, which flooded the
sector with yet more capital
certainly, as in placing insurances with
chasing premiums with the resultant the banking sector
increased competition and reduced costs. there has been an traditional insurers…
Commercial rents of critical importance
PROPERTY: PAUL GINESS
Rents agreed in 2008 will have a throughout the UK. Central London, with legislation (introduced 1 April 2008) and
significant impact on the forthcoming a strong emphasis on the West End, has a slowdown in the UK and world economy
2010 business rates revaluation. New experienced an enormous growth in rental has led to reduced demand and a potential
rateable values will come into effect value due to very limited office space being drop in rental values. It will therefore be
on 1 April 2010, however the valuation available in this area. This compares with interesting when the Government publishes
date occurs two years before the the rest of the UK, which has seen a more the draft values next year to see how this is
revaluation and is based on rental levels measured rise in value. taken into account.
on the open market at 1 April 2008.
Industrial property has been steady and
Negotiating a fair rent is always of strategic
Property rents have increased by an less erratic than the other sectors with
importance but particularly at the moment,
average of 13% nationwide during the last an average rental growth of just 6%.
and achieving the correct rent in the
revaluation period 2003 to 2008. The retail
Prior to 1 April 2008, rental values were current market will benefit your company’s
sector has experienced the strongest rental
still relatively buoyant, however the bottom line whilst at the same time helping
growth with an average rise of 16% in the
combination of changes to empty rates to release hidden profits.
revaluation period, although this figure
reflects different trends within this sector.
For example, retail warehouses have seen
a stronger growth than high street shops
The retail sector has experienced
and shopping centre units – by almost 10%.
Office rents have seen an average rise
the strongest rental growth with
of 11%, however, similar to retail, this
average reflects differing pockets of growth an average rise of 16%…
European Truck makers sales hit the road!
LOGISTICS: KEN ROGERS
By late October, most of the major The downside of running older vehicles
European truck makers had reported to the users of services is that service
that sales of new commercial vehicles standards begin to slip because of
had dropped over by 40%. increased breakdowns and non-scheduled
service times impacting on delivery service.
This dramatic statistic is symptomatic of
This unwillingness or inability to invest in
the significant impact of the credit squeeze
asset replacement will have a medium term
and developing recession on the logistics
impact on the cost of supply chains. For
sector. The implications will have a direct
example, the reduced volumes of goods
effect on the cost of supply chains for
being moved does not necessarily translate
manufacturers and wholesalers.
into fewer deliveries, but potentially into
smaller, more frequent and less predictable
The drop in truck sales (larger than that
delivery patterns. The UK Logistics sector
being reported in the wider economy) is
has been honed into a very efficient
the result of a triple whammy:
operation based around a strong economy,
• Service providers are unsure of demand and the supply chain characteristics
for logistics services, against a necessary to serve such an economy.
background of declining demand, Adapting that infrastructure to changed
and are therefore delaying replacement, supply chain characteristics will require
or reducing fleet sizes investments in different vehicle specifi-
cations, depot networks, and warehouse
• In the short term, running vehicles for
operations. For many logistic service A simple example of the added cost of
longer reduces bottom line costs through
providers struggling for survival, it will be sub-optimal provision would be a company
lower depreciation or leasing costs
some time before the funding is available supplying their goods to the market via
• Even if providers wish to replace vehicles, to achieve the required efficiencies. In the palletised distribution. If delivery frequency
there is not necessarily the capital available meantime, this potentially leaves users remains the same to satisfy customer
from the financial markets to do so. bearing the cost of sub-optimal solutions. requirement, but volumes reduce by 25%,
the cost of distribution per item sold
increases by 33%, even if the logistics
The implications will have a direct service provider’s charges remain constant.
Against this background, it is vital that
effect on the cost of supply chains suppliers of goods should be reviewing not
only the prices of logistics services, but also
for manufacturers and wholesalers whether they have the correct choice of
supplier(s) to provide lowest cost solutions
against their changing requirements.
Disposal of Waste Revenue Quote from one merchant: “prices are
changing quarterly – going down every
WASTE: DAVID LITTLE & KEITH ROBINSON
• Plastics – e.g LDPE clear down from
around £300/t in early Sept to £100/t
Waste costs have again risen at well • Steel cans/packaging – £235/t in
in late October.
above inflation this year due to the mid summer to £10 in late October
33% increase in landfill tax, fuel costs • Cardboard/paper – down by at least
and further regulations. Now there 50%, with one local council collector
is another problem – the sale values only offered £10/t by their merchant. It is expected that the waste producers’
of recycled materials are dropping The problem is how to stockpile it if it recycling responsibilities for Batteries are
alarmingly. In some cases recyclers can’t be sold – if left out in the weather now not likely to be introduced before Jan
have refused to accept more materials it deteriorates and becomes worthless. 2010 (instead of 2009).
as the demand has dried up
and storage facilities are full.
The international banking
A dramatic fall
crisis and worldwide
slowdown in manufacturing
in the demand
has triggered a dramatic fall
in the demand (and therefore
prices) for recycled materials
and prices for
in recent months:
Company cars – capital allowance changes
Time is running out to take action!
FLEET: GERRY PENTLETON
The move to emissions-based Capital
Allowances on company cars,
announced in the March 2008 Budget,
will have a significant impact for all
UK businesses, irrespective of how
they are acquired.
With the new legislation due to take effect
from April 2009, getting ready for this new
regime should be a major focus for all
organisations regardless of the number
of cars they operate.
The changes in the treatment of Capital
Allowances are part of a range of
Government measures to encourage
greener motoring and focus on replacing
the current rules, based on price, to one
centred on their CO2 emissions.
However, it should be noted that the
Treasury is yet to confirm whether this
legislation is to be applied retrospectively
or solely on new cars registered after
1st April 2009. It is hoped that clarification
on this point will be made within the
The move to emissions-based Capital Allowances on
company cars will have a significant impact for all
When a car is disposed of, the proceeds The precise impact will depend on the CO2
Current Rules will be deducted from the relevant pool, make up your fleet of company cars and
Company cars are written down at 20% but there will be no balancing allowance, how the cars are acquired.
(or 25% for those registered prior to 1st because cars will not be separately
A further beneficial effect will be to lower fuel
April 2008) on a reducing balance basis, identified. Each pool (i.e. 10% or 20%)
costs as there is a strong link between low
to a maximum of £3,000 per annum. will continue to be written down on an
CO2 emissions and improved fuel efficiency.
Each car is calculated individually and ongoing basis. This means that, in the vast
there is a balancing adjustment when the majority of cases, cars will still be going It will also simplify administration, as cars will
car is disposed of: this ensures there is through the writing down process long after be pooled rather than dealt with individually.
full corporation tax relief for the difference they have been disposed of.
between the purchase price and the Action To Take
But what does this all mean for your
eventual sales proceeds. Cars with CO2 As a minimum, it is advisable to undertake
organisation and what steps should you
emissions of 110g/km or lower enjoy a a review of your car choice guidelines and
take to be ready for it?
first year allowance of 100%. amend your policy to ensure that only cars
omitting less than 161g/km are allowed on
New Rules choice lists.
The Government's view is that this change
The new scheme will include all cars on
will be broadly cost neutral. However it will It is also sensible to review how you acquire
a pooled basis rather than individually.
only be so if the emissions profile of your your cars – if you currently purchase
Cars with emissions above 160g/km will
fleet is tax efficient. expensive cars with emissions lower than
be written down at 10% and those under
161g/km, it is likely to be cost effective to
161g/km will be at 20%, both on a Cars will have to be written down over a
finance these in future via an operating lease.
reducing balance basis. The £3,000 longer period of time and despite the removal
maximum is to be removed and the first of the £3,000 per annum limit, the corporation This legislative change also offers a good
year allowance of 100% for cars under tax write off for most organisations is likely opportunity to fully review all aspects of how
111g/km will remain in place. to be less than it is currently. you operate your company car fleet.
Entertaining Insurance Savings for Zavvi
SUCCESS STORY: SCOTT INGHAM
Steve Peckham, Zavvi’s Chief Financial the extensive support of a group was to ensure that the communication lines
Officer explains: “I was particularly insurance department and, therefore, to the insurance market were managed
concerned that, as a new company needed to review our administration effectively and the information was
coming out from the shelter of a group and risk management procedures.” presented in a clear format, to enable the
insurance programme, we might face underwriters to understand the qualities of
Scott Ingham, Director (ERAICM) explains,
an increase in premiums. The group the business fully and consequently reflect
“The challenge was to correctly position
insurance covers were very generalist this confidence in zavvi, with lower
Zavvi’s risk profile with the insurance
and there was a definite need for a insurance costs and broader cover.
market. This was achieved through a series
programme more suited to Zavvi’s
of interviews with key operational staff and
retail operations. We were also used to In support of this the broker service also
by focussing on Zavvi’s commitment to risk
has to be organised carefully, with the
management and good claims experience.
right people for the job, because they have
With retail operations, the key insurance an ongoing and integral role to support
exposures revolve around injury claims these activities, so generating a tripartite
from the public, property exposures and relationship is important to support this
supply chain. So the focus for the project on an ongoing basis.”
“I was very impressed with the depth of expertise which was applied to the
exercise, which was a well balanced objective process and delivered many
improvements including substantial cost savings. It was a painless process
and one which I would recommend to all organisations.” Steve Peckham, Chief Financial Officer
Winning profits for Harvey Ingrams
SUCCESS STORY: ADAM WHEATLEY
organisation and absolutely focused on the following recommendation: “We wish
delivering best value to Harvey Ingram.” to bring to your notice the opportunity to
Adam Wheatley first got involved with
work with a very professional organisation.
Harvey Ingram in 2003. He met with Sarah asked us to provide an ongoing
Adam Wheatley has introduced a variety
the Managing Partner, Chris Finlay, and service for Power. Sarah explains “I have
of specialists who have delivered increased
Practice Manager, Tony Yates, to look been very impressed with the service
profits in a variety of cost areas.
at reducing expenses. Adam brought provided, the level of personal care and
in a number of Expense Reduction attention being very high. I have learned The supply agreements negotiated have
Analysts specialist consultants to review that the increased profit achieved, in itself been entirely satisfactory and the profit
Communications (Landlines and very valuable, is only part of the value that improvements achieved have proved to be
Mobiles), Power, Stationery, Print and Expense Reduction Analysts bring. As a greater than originally predicted. Harvey
DX. Overall savings of 24% have been result I have asked them to continue to look Ingram’s experience of dealing with Expense
achieved across these cost areas. after our Energy requirements beyond the Reduction Analysts has been positive and
initial period of engagement.” produced very real profit improvements.
Sarah Fane-Forester comments “When I
arrived at Harvey Ingram my predecessor, Harvey Ingram were pleased with Expense We are happy to recommend Expense
Tony, who retired, spoke of Expense Reduction Analysts efforts and so brought Reduction Analysts to other solicitors,
Reduction Analysts very positively. Of course us to the attention of other solicitors, with and to anyone else for that matter.”
I had the usual doubts: were the increased
profits quoted for real?; why can’t we make “I have been very impressed with the service
these increased profits for ourselves?;
cheapest is not usually best; and so on. provided by Expense Reduction Analysts. The
Since then my experience of working with
Expense Reduction Analysts has taught me
level of personal care and attention is very high.”
that they really are a highly professional Sarah Fane-Forester, Practice Manager
Correct at time of print
find extra profit