RSS feedsThe 15th annual DTI Research & Development Scoreboard provides a rich source of information concerning how seriously UK companies take R&D expenditure. The survey offers detailed analysis of 750 of the UK’s top R&D players and compares them with the world’s 1,000 most R&D intensive companies. The findings are illuminating.
According to the research there are “wellestablished” links between R&D and company performance. “R&D intensity (investment as a percentage of sales) is strongly correlated with sales growth, wealth creation efficiency and market cap-to-sales ratio,” according to the research authors.
Indeed, 81% of companies with an above average wealth creation efficiency also have above average investment intensity in R&D, capex or both. Perhaps most telling is that the growth in market value for those FTSE-100 companies with the highest R&D intensities was 69% over the last eight years. The FTSE- 100 average was just 7%.
But a conflicting report from Booz Allen Hamilton into what it calls the top 1,000 global innovation spenders, concluded that, despite a 2004 R&D spend of $384bn, there is “no relationship between R&D spending and corporate performance”. This is despite the average annual growth rate since 2002 reaching 11% among those companies.
The DTI report highlights three conditions to corporate success, only one of which directly involves R&D spend: good strategic choices, such as organic growth and smaller bolt-on acquisitions; operational excellence, efficient business practices and a focus on customers; and, wise and balanced investments, which includes R&D as well as capex and other expenditures.
“A company which consistently under underinvests with an R&D intensity well below the best competitors in its sector is likely to see its product range become less and less competitive and will find that this is reflected in its value added and business performance,” the research finds.
The study allows finance directors and CEOs to take a detailed look at comparative data on a company, industry and country- basis. The US continues to lead the pack with Japan, Germany and the UK following.
DaimlerChrysler tops the global list of R&D spenders, followed by Pfizer and Ford. The UK’s two pharmaceutical giants, GlaxoSmithKline and AstraZeneca, lead the UK’s list with only GSK making it into the global top 15, in 11th place.
Worryingly, R&D spend in the UK decreased over last year, with a 0.5% reduction over the previous 12 months for the 750 UK companies in the scorecard. Despite this the number of firms classed as R&D intensive (those that spend upwards of 4% of sales and £1m in total on R&D) increased by 7%.
One of the simplest forms of measurement that the study uses is the share price performance of R&D-intensive companies. These companies spend upwards of 4% of sales revenue on R&D and at least £1m, and as mentioned those companies in the FTSE-100 have enjoyed a growth of 69% compared to the FTSE-100’s overall growth of just 7%.
“The strong performance of the R&D-intensive portfolio over a number of years demonstrates that those R&D-active companies do have share price performance above that of the index and are therefore useful candidates for inclusion in a portfolio,” concludes the research.
For a copy of the 2005 R&D Scoreboard visit www.innovation.gov.uk/finance or call 08450 150 010
