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Vero Software accounting questions

Sunday, December 30th, 2007 at 10:29 am Written by:

I am not an accountant, but how hard can it be? It’s only numbers that are supposed to add up, which account for money — the be all and end all of all business these days.

I happened to find myself on a very long train journey from Stuttgart to Berlin last week, and happened to have downloaded all of Vero Software’s annual report and accounts from 2000 to 2006, and read them. You know all those useless tables of numbers you normally flick through because you’re eyes have glossed over? Well, I started pulling some of the numbers out from them and putting them into another table which graphs the changes over time.

In the following table, £30k means £30,000. When two numbers are given, for example the £1007k or £955k for the 2001 development costs, the first is the number in the 2001 accounts, and the second is from the 2002 where they were restated for comparison, and the number wasn’t the same.

These discrepancies might be due to incompleteness of the main accounts, changes in accounting procedures, restatements backdating the values of company acquisitions for comparison, and so forth. If so, I can’t tell, because they don’t show the workings, and you would expect to see inconsistencies in the value of “number of developers”, which you don’t.

Some of the workings remain for the Kleban column, which refers to the amount of money paid to Kleban and Samor Attorneys in New York City for form filling, at which one of the directors was employed, so is declared as a conflict of interest. The 2000 accounts say they were paid £54k, the 2001 accounts say they got an additional £67k making a total of £121k, and the 2002 accounts report “The aggregate of fees amounted to approximately £74,500 (2001: £121,000).”

I did have the column for Acquisitions, but due to “amortization of goodwill”, the numbers are totally useless and all over the place. The rest of the columns are described below.

Year turnover development costs developers Other income Directors Babbs Kleban
1999 £4545k £614k 16 £142k £355k £81k £0
2000 £5216k or £5642k £1077k 22 £1k £418k £103k or £102k £54k
2001 £6128k or £6456k £1007k or £955k 21 £132k £525k £116k £67k (Ivy £14k)
2002 £6984k or £7542k £1282k 25 £458k £531k £138k £74.5k (Ivy £21k)
2003 £8823k £1350k or £1450k 30 £282k £495k £143k £75k (Ivy £43k)
2004 £9698k £1339k 30 £228k £479k £146k £36k
2005 £9936k or £10196k £1446k or £1268k 31 £95k £520k or £531k £161k £26k
2006 £11027k £1471k 37 £75k £563k £166k £1k

The columns are:

Directors – the total pay of the board of directors, which is between 5% and 8% of the turnover per year. Officially they are paid this much to stop them going off to get jobs elsewhere in the industry, at great loss of talent to the company. Since they have all been there for years, it doesn’t look like there has ever been a threat followed by a bluff-calling. The highest paid director, Babbs, has his own column.

Kleban has already been described. Ivy refers to money given to another director’s financial company for financial bureaucracy. More about this some other time.

Development cost and developers is the investment and number of staff in that part of the company. In business, there’s usually a conflict between the customer’s interests and the shareholder’s interests. Put simply, if you buy software from a company, the only thing you get are what the developers have done for you. That and part of the sales support, I suppose — the ancillary materials. But, for example, if the company blows half its turnover on a beautiful headquarters building, or Jaguar cars for the directors, you don’t get those. The development costs tell you what the cost price of the product is.

For me, the most interesting column is other income, because here the numbers really don’t add up at all. There is a paragraph in the accounts that says:

Government grants are credited to the profit and loss account as other income to match the period in which the costs have been incurred provided that the grant has become receivable and there is reasonable assurance that it will be received.

Now, I happen to have tracked down a statement about Eureka grant E!2551- VISI-XX which reports 6.1million euros split 70%-30% between Italy and The Netherlands between 2001 and 2003, listing Vero Software as the main participant. The company was originally founded in Italy before it moved to the UK. If you do the sums, it rounds to about £3million over those two and a half years.

So where has all that money gone? The other income column certainly does not add up to this sum. I am conducting further investigations.

1 Comment

  • 1. Freesteel&hellip replies at 29th October 2009, 12:43 pm :

    […] business, the way it doesn’t go anywhere, and the history of this particular company to absorb large government grants with which they could buy someone else’s software. At some point people need to have a […]

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