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All tied up - Working capital management report 2011 - Company and industry performance review - EY - Global

All tied up: Working capital management report 2011

Company and industry
performance review

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In contrast with 2009, cyclical and oil industries reported much improved WC performance in 2010, while results were more varied in other industries.

Summary: A majority of the companies included in the annual WC survey reported an improvement in WC performance, but with diverging results in each WC area.

Company performance review

In the US, slightly more than half of the companies included in the survey (53%) showed improved C2C performance in 2010 compared with 2009, a proportion that was well above the level recorded in the previous year (33%). A majority of companies reported improved payables (56%), while the proportion of companies showing better receivables and inventories was smaller (49% and 50%, respectively).

In Europe, the number of companies showing improved C2C performance was 57% in 2010, sharply up on the year before (38%). There was a high proportion of companies (62%) reporting better payables performance, but a minority of companies showing stronger receivables performance (46%).

For inventory, half of the companies (50%) reported a better performance. The latter results appear to contradict reported overall declines in DSO and DIO, which suggests stronger performance for larger companies in those areas.

Proportion of companies showing improved performance, 2010 vs. 2009

  C2C change, 2010/2009
  US Europe
DSO reduction 49% 46%
DIO reduction 50% 50%
DPO enhancement 56% 62%
C2C reduction 53% 57%

Source: EY analysis, based on publicly available financial statements

Industry performance review

In contrast with 2009, cyclical and oil industries reported much improved WC performance in 2010, while results were more varied in other industries.

In both the US and Europe, cyclical industries, such as automotive supply, chemicals, diversified industrials, semiconductors and steel, achieved significant progress in reducing levels of WC in 2010, making up most of the ground lost of the previous year.

These results were achieved in the context of a much better year than expected in terms of sales growth for those industries, but they were affected, in some cases, by supply constraints and extended lead times. It is worth noting that the overall pace of improvement in 2010 compared with 2009 would have been lower had the last quarter of each year been used as a basis for comparison rather than the full year (as global production recovered sharply in the final quarter of 2009 compared with the full year).

Among non-cyclical industries, in both the US and Europe, food producers reported strong WC results (C2C down 2% and 13%, respectively), supported by much higher DPO, notably on the back of progress made in extending payment terms as well as commodity costs inflation. Performance in receivables and inventories was more varied across both regions, with European companies reporting improvement in both areas in contrast with their US peers.

For food and general retailers, WC results were poor, with C2C rising 3% and 8%, respectively, in the US and Europe. This follows significant improvement the year before. Inventory performance deteriorated while receivables and payables results were mixed.

For pharmaceuticals, European companies posted much better results (C2C down 6%) than their peers in the US (C2C up 1%), mostly due to a stronger performance in receivables.

In contrast with last year’s significant deterioration, the oil industry in both regions registered a large improvement in WC performance. This was mostly on the back of much improved inventory performance. The magnitude of the change was also exaggerated by the relatively low level of WC inherent in the nature of the business.

Most significant WC changes among major industries, 2010 vs. 2009

  C2C change, 2010/2009
Major industry US Europe
Cyclical    
Auto parts -12% -12%
Chemicals -8% -7%
Diversified industrials -2% -2%
Semiconductors -1% -13%
Steel -12% -1%
Non-cyclical    
Food producers -2% -13%
Food and general retailers 3% 8%
Pharmaceuticals 1% -6%
Other    
Oil -37% -12%
C2C reduction 53% 57%

Source: EY analysis, based on publicly available financial statements



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