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On Thursday I was able to ask the directors of Arden Partners (LSE:ARDN) what plans they had to move out of the value-destroying furrow they had been in for the last few years. Some dismal facts:
2014 profit: £103,000
2015 loss: £2,098,000
2016 loss: £475,000
These losses are enormous relative to both market capitalisation (£6.75m) and net current asset value (£7.05m)
(There are more background figures for this company in the Newsletters posted 9th – 11th Feb 2017)
The big idea
It would appear that there are two aspects to the strategy under the leadership of Luke Johnson, the serial entrepreneur and chairman of Arden with 11% of the shares.
Strand one. Examine every part of the business looking at each individual cost and imagine that the company is not currently paying for it. Then ask the question “would we gain enough return for shareholders by shelling-out for this item to justify using shareholders’ money in this area?”
If not, then the answer is to stop paying for it. This is the zero-based budgeting that I raised at last year’s AGM. Clearly, the book that Luke Johnson had given to Steve Wassall, COO, has been read. With little prompting Steve told the assembled (mostly staff, Nomads and company lawyers, but two independent shareholders) that he was examining all costs of the business in this manner.
And the evidence on zero-based budgeting is starting to show; employees have fallen from 40 to 38, and director’s remuneration is again down year on year.
More significantly, total staffing costs were down £588,000, from £4,281,000 to £3,693,000. Also administration costs other than employees fell by £735,000, from £3,365,000 to £2,630,000.
I thanked the board for lowering cost to such a degree and expressed my gratitude that Luke Johnson was not accepting any remuneration (he responded that just wants to see a profitable business).
Despite the cost reductions, revenue increased from £5,486,000 to £5,857,000. It seems there was plenty of deadwood to clear away.
I’m told that the dramatic cost cutting phase is over; they do not want to “cut into the fabric of the business”.
Strand two is to hire people with excellent client relationships and pay them nothing. Nothing, that is, unless they bring in lots of new business to Arden.
It turns out that this industry has many corporate brokers who need to find a safe platform from which to do their thing. After the meeting I chatted with directors and a member of a recently hired team brought in on this extreme reward-for-success project…………………………..To read the rest of this article, and more like it, subscribe to my premium newsletter Deep Value Shares – click here http://newsletters.advfn.com/deepvalueshares/subscribe-1
