CFO Europe - Close Cycle Rankings 2008
Fasten Your Seatbelts - The "fast close" is not just 1990s nostalgia.
Eila Rana
CFO Europe Magazine
July 7, 2008
"I'm not blaming any meltdown in systems. This was more simple," Rod Kent, chairman of Bradford & Bingley, told reporters in early June. He had the grim task of announcing that the UK's largest buy-to-let bank had been hit hard by the subprime crisis and needed to raise more than the £300m (€380m) it was expecting from a previously announced rights issue. The "simple" reason behind the bank's unexpectedly large cash call, he said, was the speed at which the executive team was getting data. "The mortgage situation changed swiftly at the end of April when arrears started rising and net margins decreased," he explained. "We did not have access to this new financial information until the end of May."
In a world where information is readily available from whizzy, web-enabled IT systems, few expect the pace of reporting to be the main culprit for such troubles. But for many experts, Bradford & Bingley's crisis comes as no surprise. While it is true that since the late 1990s companies have taken great pride in their ability to accelerate the closing of their books, some have taken their foot off the accelerator in recent years. These companies harbour compliance-driven fears of disseminating inaccurate information, claiming that they now emphasise quality rather than speed of disclosure.
The argument doesn't wash with David Jones, director of Paragon Consulting Group and chairman of BPM International. "I'm a great advocate of the fast close," he says. "A fast close is synonymous with finance efficiency." If systems and processes are working well, the close is too. Bradford & Bingley offers an object lesson in what happens when reporting cycles fail to keep up with the ever-increasing pace of business.
Against this backdrop, new analysis of closing cycles by Paragon and BPM shows that, unlike Bradford & Bingley, the majority of companies are speeding ahead. Over the past five years, 60% of the largest European companies have reduced the time between the year-end and their results announcements by an average of ten days. The biggest reductions have been in the Netherlands, France and Switzerland, where 70% of the largest companies have trimmed timetables by 14 days. Despite Europe's improvements, however, Jones notes that the pacesetters are in the US. This year the average preliminary results announcement in the US took 29 days, compared with 50 days in Europe.
Digging into the European data, the star of the research is Novartis, a Swiss pharmaceuticals firm that released its latest preliminary results 17 days after its December 31st close, one day faster than the previous year. Other fast closers include Philips Electronics (21 days) and LVMH (37 days). Both Philips and LVMH are among the handful of companies that the researchers commend for "exceptional improvement" over the past five years, having reduced year-end reporting cycles by more than 40% on average.
How do companies like Novartis, Philips and LVMH do it? Along with standardised processes and data sets, they have robust ERP or business process management systems enabling automated, centralised consolidation, Jones explains. He also mentions their ability to prevent inter-company reconciliations from bogging down group closes, and their desire for continuous improvement, regularly monitoring and finessing each part of a close in a general drive to make finance more efficient and add more value.
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