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Working capital management: all tied up - Company and industry performance review - EY - Global

Working capital management: all tied up

Company and industry performance review

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In the US, more than half of the companies included in our research (54%) showed improved C2C performance.

A majority of US companies, but less than half of those in Europe, reported an improvement in WC performance.

In the US, more than half of the companies included in our research (54%) showed improved C2C performance in 2011 compared with 2010 (a figure slightly above that of the previous year). A majority of companies reported improved receivables and inventory performance (56% and 52%, respectively), but only a minority reported improved payables (44%).

In Europe, there was a small majority of companies reporting a year-on-year deterioration in C2C performance. These results are in sharp contrast with those in 2010, when 57% of companies showed improved C2C performance on the previous year. Only 42% of companies reported better inventory performance, meaning that a majority of them scored worse.

For receivables and payables, there were virtually identical numbers of companies underperforming and outperforming.

Industry performance review

In contrast with the prior two years, the distinction in WC performance between cyclical and non-cyclical industries was less pronounced in 2011. Having been hit especially hard by the global downturn of 2008, cyclical industries returned to a more “normal” growth path.

For a number of industries, currency fluctuations and different growth patterns in the last quarter of the year may partly explain the divergence in WC results between the US and Europe.

  • Movements of the Swiss franc against other major currencies, for example, had a significant impact on the WC performance of European food producing and chemical-manufacturing businesses compared with their counterparts in the US.
  • For the automotive supply industry, 2011 was a turbulent year. Macroeconomic uncertainty in Europe and natural disasters in Asia added significant stresses to WC management and supply chains already stretched by the continuing recovery in global demand. Against this challenging backdrop, companies in both the US and Europe reported a deterioration in WC performance.
  • For food and general retailers, WC results were especially poor in Europe, with C2C rising 15% (bringing the total increase to 22% in the last two years). This was largely due to higher levels of inventory, while payables were slightly lower.
  • For pharmaceuticals, there was an overall rise of 3% in C2C, due to a combined increase in receivables and inventory, partly offset by higher payables.
  • For electric utilities, WC performance this year was heavily influenced by the impact of exceptionally mild weather conditions in the last quarter, which led to much lower levels of unbilled energy.
  • In contrast with last year, the oil industry in both regions registered a significant improvement in WC performance.
  • This was mostly on the back of much improved inventory performance. Measuring like-for-like progress, however, is still made difficult by changes in the oil price.

Most significant WC changes among major industries, 2011 vs. 2010

  C2C change 2011-10
Major industry US Europe
Cyclical    
Auto parts 1% 2%
Chemicals -5% 1%
Diversified industries 2% 2%
Semiconductors -3% 6%
Steel 4% -5%
Non-cyclical    
Food producers -2% 6%
Food and general retailers 1% 15%
Pharmaceuticals 1% 5%
Other    
Electric utilities -2% -3%
Oil -7% -9%

Source: EY analysis, based on publicly available annualfinancial statements.

 


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