Company and industry performance review

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Company performance review

In the US, 58% of the companies included in our research reported a deterioration in WC performance, while 59% of those based in Europe showed an improvement.

In Europe, a significant majority of companies (59%) reporting an improvement in WC performance in 2012 compared with 2011.

In the US, only 40% of the companies analyzed showed an improvement in WC performance in 2012 compared with 2011. These results are in sharp contrast with the year before, when the comparable figure was 54%.

A majority of companies saw a deterioration in receivables and inventory performance. For payables, there were almost identical numbers of companies underperforming and outperforming. Only one-third of the companies in the US that showed an improvement in WC performance in 2011 compared with 2010 achieved further progress in 2012.

In Europe, a significant majority of companies (59%) reported an improvement in WC performance in 2012 compared with 2011. By way of comparison, less than half of these companies showed an improvement in the year before.

Industry performance review

In 2012, there were wide divergences in the WC performance of various industries across and within regions. This partly reflects the impact of contrasting economic growth patterns and changes in exchange rates during the year.

For most cyclical industries, the divergence in WC performance between the US and Europe can be largely explained by many of the same external economic and financial factors mentioned above.

For example, for the automotive supply industry, 2012 was characterized by sharply diverging trends in automotive production between regions (up 17% in the US and down 6% in Europe from their levels of 2011). Against this difficult background, automotive suppliers in the US reported significantly higher C2C, while their European peers still managed to reduce C2C.

Among non-cyclical industries, pharmaceutical companies in the US reported higher C2C, while those in Europe posted lower C2C. Both regions saw a significant deterioration in inventory performance, affected by the impact of patent expirations on levels of inventory on hand (DIO up 14% and 6%, respectively in the US and Europe).

For European companies, this impact was more than offset by much higher DPO and lower DSO, while for US companies, progress in both receivables and payables was not big enough to reverse poor results in inventory.

For electric utilities, WC performance in 2012 was again heavily influenced by the impact of unusual weather conditions during the year, and especially in the last quarter. Last year’s industry results also reflect the progress made in transforming its business model against a backdrop of ever-changing energy policies and regulatory frameworks.

For the oil and gas industry, changes in exchange rates between the US dollar and the euro played a significant part in explaining the variations in WC performance between the two regions. Companies in Europe reported a further significant improvement, while those based in the US posted a stable performance. These results were achieved in the context of oil prices that have remained almost unchanged in US dollar terms in 2012 compared with 2011.

Most significant WC changes among major industries, 2012 vs. 2011

  C2C change 12/11
  US Europe
Cyclical
Automotive supplies 5% -8%
Chemicals 7% -4%
Diversified industrials 3% -2%
Semiconductors 6% 16%
Steel 6% -6%
Non-cyclical
Food producers 3% -13%
Food and general retailers -1% -7%
Pharmaceuticals 5% -3%
Other
Electric utilities 2% -9%
Oil 0% -11%

Source: Ernst & Young analysis, based on publicly available annual financial statements