Wednesday, September 09, 2009

Korn/Ferry -- Questionable Balance Sheet!

Korn/Ferry International (KFY) issued anaemic results. The headhunting business is not what it used to be. Revenues are approximately 50% of what they were just recently. Fixed costs are difficult to cut and the operating leverage is biting the investor. Cash balances seem to be at acceptable levels. But let’s take a look at a few other tangible issues on the balance sheet.

Receivables are up on declining revenues. This means that the client base is being allowed to string out payments which has obvious negative implications for cash flow. Are they winning assignments because clients can finance deferred payments? This is similar to selling cheap sofa’s to trailer park clients.

Compensation and benefits payable is down. Are the consultants getting stretched out to match the timing of receivables? Will this be a good place for consultants to hang their hat or will other deals look attractive.

The press release refers to Korn/Ferry Institute which is the repository of thought leadership, intellectual property and research. The institute’s web site says

“It is our intent to commission, originate and publish groundbreaking research utilizing Korn/Ferry’s unparalleled expertise in executive recruitment and talent development, combined with our preeminent .behavioral research library.”

This just does not line up squarely for me. Is the institute a separate financial entity? Who pays the bills? How is intellectual property being transferred and paid for? Are the shareholders winners or losers ? Where is the independent oversight?