2015 annual global working capital survey - pwc · 2015 annual uk working capital survey 3 working...

Bridging the Gap2015 Annual UK Working Capital Survey

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2 Bridging the Gap

Contents

Executive summary

What is driving working capital?

1. Industry analysis

2. Geography analysis

3. Size analysis

4. Financial performance analysis

How we can support you

Contacts

3 8 11 17 23 27 32 42

Appendices

34

32015 Annual UK Working Capital Survey

Working capitalhas improvedfor the firsttime inthree years

UK companies' working capital daysare at a three year best

28.1 days

There is a

wide gap between top and bottom performersacross all sectors

12 out of 16 sectors managed to improve working capital since 2010

have the highestworking capitalratio of all theUK regions

Small enterprises have a significantly

higher NWC %than large corporations

Companies that are top performers in working capital, are also better at

could be released from balancesheets by improving workingcapital performance

12/16

generating cash

The West& Wales

GBP 24.2bn

-8.5%Cash conversion efficiency

has increased by 11% inthe last year

11%

4 Bridging the Gap

Working capital of UK companies is at its best performance level for three years

2010 2011 2012 2013 2014

-14.4%

6.6% 7.1%

-8.5%

Days working capital

31.426.8 28.6 30.7 28.1

NWC days

Delta days %

2010 2011 2012 2013 2014

2014 has broken the trend, with UK companies achieving a significant improvement in working capital for the first time in three years. Cash is clearly back on the management agenda. This improvement in working capital has also helped UK companies improve their overall ability to generate cash. As a result cash conversion efficiency (CCE) has increased by 11%.

However, these improvements do not mean that UK companies can rest on their laurels. Our study has shown that there are significant performance gaps across the UK regions and industries. Addressing these gaps will enable UK companies to more than service future cash requirement through efficiency gains. Working capital is the lifeblood to managing this liquidity flow and in the immediate aftermath of the financial crisis, many companies re-focussed their attention towards improving cash controls. The resulting improvement in net working capital for UK companies in 2011 was, however, short-lived and consecutive years of deterioration followed.

By improving net working capital days by 8.5%, our 2015 survey has highlighted a clear reversal in this trend with companies delivering the best performance levels in three years.


Execu

tive su

mm

ary

Wh

at is drivin

g w

orking capital?

1. Indu

stry a

nalysis

2. G

eography

an

alysis3. Size

an

alysis

4. Financial perform

ance analysis

How

we ca

n su

pport youA

ppend

icesThe year-on-year movement was primarily driven by a strong improvement in inventory, as well as trade receivables

Days sales outstanding

Days inventory outstanding

Days payables outstanding

2010 2011 2012 2013 2014

2010 2011 2012 2013 2014

39.238.0

38.6

53.855.4

63.7

53.2

41.141.139.740.1

6.2%

1.1%

3.2%

2010 2011 2012 2013 2014

38.4

42.9

40.3

53.2

2010 2011 2012 2013 2014

2010 2011 2012 2013 2014

39.238.0

38.6

53.855.4

63.7

53.2

41.141.139.740.1

6.2%

1.1%

3.2%

2010 2011 2012 2013 2014

38.4

42.9

40.3

53.2

2010 2011 2012 2013 2014

2010 2011 2012 2013 2014

39.238.0

38.6

53.855.4

63.7

53.2

41.141.139.740.1

6.2%

1.1%

3.2%

2010 2011 2012 2013 2014

38.4

42.9

40.3

53.2

UK companies delivered the strongest receivables performance, measured in days sales outstanding (DSO), in five years with a 3.2% improvement to 38.0 days in 2014. It remains to be seen if this reduction has been driven by improved customer payment terms or by more effective collection strategies, or a combination of both. Many companies still consider the ‘receivables’ process as starting once an invoice falls due, however it is clear that the top performers focus their energy across the entire order-to-cash cycle, from customer take-on and contract negotiation (including payment terms and special billing arrangements) to billing timing and accuracy, to proactive customer contact and cross functional dispute resolution and root cause eradication.

Inventory performance, measured in days inventories on-hand (DIO), has shown the largest year-on-year improvement across the three levers of working capital. Whilst many corporates have traditionally focussed on supply chain cost efficiencies, with a reduction of 2.5 days (6.2%) in DIO in 2014, UK companies appear to have clearly actioned inventory

reduction opportunities. The more stable and predictable levels of growth seen in the UK over the last three years also impacted the DIO performance. Less variability of demand has enabled companies to more closely plan inventories to meet demand.

In 2011 UK companies adopted a short term cash preservation strategy whereby their days payables outstanding (DPO) increased by more than 10 days to 63.7. Such stretching of payments places pressure across the supply chain if maintained over a sustained period and the following three years have shown a return to 2010 levels. With 2014 DPO days showing a 3rd successive year of reduction (-1.1%), Trade payables is the only areas of operating working capital that is showing a steady negative trend.

6 Bridging the Gap

The relative working capital improvements have contributed to increased ability to generate cash

Outperforming their European counterparts, UK companies have delivered a significant improvement in their ability to convert EBITDA into operating cash flow (measured by cash conversion efficiency ratio), which increased by 8 percentage points (pp) over the last year (74.4% to 82.5%).

While cash levels are currently high both on company balance sheets and in the market place, there is still a significant requirement for funds to support anticipated future growth. Over the last three years the growth rate has been 1.3% per annum (compound annual growth rate). At a minimum, if such growth rates are sustained and the same level of working capital maintained, we estimate that UK companies will need a further GBP 5.8 billion of working capital to fund their operations in 2015.

2010 2011 2012 2013 2014

72.3%

80.7%

76.3%74.4%

82.5%

Cash conversion efficiency (CCE)


Execu

tive su

mm

ary

Wh

at is drivin

g w

orking capital?

1. Indu

stry a

nalysis

2. G

eography

an

alysis3. Size

an

alysis


ance analysis

How

we ca

n su

pport youA

ppend

icesWhile growth remains relatively modest, the need for additional cash remains key

Revenue

Net working capital

GBP 5.8bn

2010

2011

2012

2013

2014

GBP trillion

GBP billion

1.31

1.44

1.44

1.46

1.47

2014

2015 119.0

113.2

2012-2014

CAGR: 1.3%

2010–2014 Compound annual growth rate (CAGR): 3.1%

GBP 5.8bn

2010

2011

2012

2013

2014

GBP trillion

GBP billion

1.31

1.44

1.44

1.46

1.47

2014

2015 119.0

113.2

2012-2014

CAGR: 1.3%

2010–2014 Compound annual growth rate (CAGR): 3.1%

8 Bridging the Gap

What is driving working capital?


There are four factors impacting a company’s working capital requirements and relative performance

Industry

Geo

grap

hy

Fina

ncia

l perfo

rma

nce

Size

1The type of business

2 The economic maturityof the region

4 Whether managementcares about cash

3 The companysize

Execu

tive su

mm

ary

Wh

at is drivin

g w

orking capital?

1. Indu

stry a

nalysis

2. G

eography

an

alysis3. Size

an

alysis


ance analysis

How

we ca

n su

pport youA

ppend

ices &

Con

tacts

10 Bridging the Gap


Industry analysis

There is a

wide gap between top and bottom performersacross all sectors

Metals top the tablewith a 4.0%improvementin NWC % inthe last five years

12 out of 16 sectors improvedworking capital performance

12/16

-4.0%

Ind

ust

ry

Geography

Financial performance

Siz

e

Execu

tive su

mm

ary

Wh

at is drivin

g w

orking capital?

1. Indu

stry a

nalysis

2. G

eography

an

alysis3. Size

an

alysis


ance analysis

How

we ca

n su

pport youA

ppend

ices &

Con

tacts

12 Bridging the Gap

NWC Days

Automotive

22

Communications

7

Transportation& logistics

11

Retail & consumer

21

Pharmaceuticals & life sciences

79

Aerospace, defence & security

46

Forest, paper & packaging

34

Healthcare

28

Industrial manufacturing

52

Hospitality& leisure

(4)

Chemicals

67

Metals

62

Technology

55

Entertainment & media

47

Energy, utilities & mining

32

Engineering& construction

59

While working capital consumption is dependent on each industry…

… all sectors show a significant spread in performance between top and bottom performers

NWC Days

“Pharmaceuticals”, “Chemicals”, and “Metals” have the highest median working capital days

20

0

40

60

80

100

180

120

160

140

66

119


28

75

Metals

31

81


59

81

Chemicals

16

108

Healthcare

(2)

54

Retail & consumer

42

4

Automotive

16

80


28

63


22

(1)


(16)

22

Communications

11

55


56


14

(16)

4

Hospitality & Leisure

77

Technology

2623

80


Top performers (top quartile)

Bottom performers (bottom quartile)


“Technology” is the sector with the longest median DSO

“Pharma & life science” is the sector with the longest medians DIO

“Transportation & logistics” is the sector with the shortest DPO

DSO

DIO

DPO

Top performers

Median

Bottom performers

Top performers

Median

Bottom performers

Top performers

Median

Bottom performers

100

0

80

60

40

20

160

0

60

40

20

80

140

120

100

160

0

100

60

40

20

120

80

55

82

36

130

149

58

125

67

53


51

68

30

81

145

59

23

45

15

Metals

64

84

44

34

80

6

61

75

36


45

68

28

23

89

1

61

72

49


48

67

29

84

103

48

51

61

43

Chemicals

43

62

28

19

98

8

41

82

31

Healthcare

54

76

35

54

93

22

23

38

3

Retail & consumer

45

24

51

48

71

6

50

67

24


50

96

23

28

-

60

84

47


35

50

22

3

2

10

28

42

21


36

96

18

15

53

2

47

66

24


68

144

59

65

81

27

60

71

41


60

110

36

40

85

-

64

74

40

Technology

36

51

27

7

23

4

11

16

3


Communications

98

125

61

6

3

15

38

55

31

140

6

75

38

84

71

77

64

18

6

Automotive

9

100

0

80

60

40

20

160

0

60

40

20

80

140

120

100

160

0

100

60

40

20

120

80

55

82

36

130

149

58

125

67

53


51

68

30

81

145

59

23

45

15

Metals

64

84

44

34

80

6

61

75

36


45

68

28

23

89

1

61

72

49


48

67

29

84

103

48

51

61

43

Chemicals

43

62

28

19

98

8

41

82

31

Healthcare

54

76

35

54

93

22

23

38

3

Retail & consumer

45

24

51

48

71

6

50

67

24


50

96

23

28

-

60

84

47


35

50

22

3

2

10

28

42

21


36

96

18

15

53

2

47

66

24


68

144

59

65

81

27

60

71

41


60

110

36

40

85

-

64

74

40

Technology

36

51

27

7

23

4

11

16

3


Communications

98

125

61

6

3

15

38

55

31

140

6

75

38

84

71

77

64

18

6

Automotive

9

100

0

80

60

40

20

160

0

60

40

20

80

140

120

100

160

0

100

60

40

20

120

80

55

82

36

130

149

58

125

67

53


51

68

30

81

145

59

23

45

15

Metals

64

84

44

34

80

6

61

75

36


45

68

28

23

89

1

61

72

49


48

67

29

84

103

48

51

61

43

Chemicals

43

62

28

19

98

8

41

82

31

Healthcare

54

76

35

54

93

22

23

38

3

Retail & consumer

45

24

51

48

71

6

50

67

24


50

96

23

28

-

60

84

47


35

50

22

3

2

10

28

42

21


36

96

18

15

53

2

47

66

24


68

144

59

65

81

27

60

71

41


60

110

36

40

85

-

64

74

40

Technology

36

51

27

7

23

4

11

16

3


Communications

98

125

61

6

3

15

38

55

31

140

6

75

38

84

71

77

64

18

6

Automotive

9

xx

xx

xx

Execu

tive su

mm

ary

Wh

at is drivin

g w

orking capital?

1. Indu

stry a

nalysis

2. G

eography

an

alysis3. Size

an

alysis


ance analysis

How

we ca

n su

pport youA

ppend

ices &

Con

tacts

14 Bridging the Gap


12 out of 16 sectors managed to improve working capital since 2010

Working capital improvement 2010‑2014 percentage points

Segmenting UK companies into 16 sectors demonstrates that the majority (75%) of sectors have shown improvements in working capital across the last five years.

Non‑improversImprovers

Healthcare

‑3.7%

Metals

‑4.0%


‑1.0%

Automotive

‑1.2%


‑0.8%

Transportation & logistics

‑0.2%

Retail & consumer

‑0.3%


‑1.2%

Technology

‑1.2%

Communications

‑1.8%


‑3.5%Aerospace &

defence

1.1% 1.3%Entertainment &

mediaChemicals

2.2%Engineering & construction

2.6%Hospitality & Leisure

‑0.7%

The big winners in terms of working capital performance are companies within the “Metals”, “Healthcare” and “Forest, paper & packaging” sectors.

Of the four sectors that have seen a deterioration in working capital performance, those in the “Engineering & construction” sector have shown the most significant pressure with cash tied up in capital intensive programmes.

16 Bridging the Gap

17

Geo

gra

ph

y

Size

Industry

Fina

nci

al

per

form

an

ce


Geography analysis

... however,

the North West& North Easthave the lowest ability to convertEBITDA into cash

Scotlandhas seen thesharpestdeteriorationin NWC % inthe last five years

60%

have the highestworking capitalratio of all theUK regions

The West& Wales

Execu

tive su

mm

ary

Wh

at is drivin

g w

orking capital?

1. Indu

stry a

nalysis

2. G

eography

an

alysis3. Size

an

alysis


ance analysis

How

we ca

n su

pport youA

ppend

ices &

Con

tacts

18 Bridging the Gap

The West & Wales show a significantly higher NWC% than other regions across the UK

NWC % EBITDA Margin CCE

68.4%9.6% 12.6%

North East

85.4%14.9%7.2%

Midlands

63.1%15.3%10.8%

North West

89.2%20.6%9.0%

NI & Isle of Man

85.9%10.3%8.0%

Scotland

80.3%14.8%14.2%

West & Wales

83.1%17.3%7.3%

London & South East

Working capital performance varies greatly across the UK regions:

• Companies in the West & Wales region have a NWC of 14.2% which is significantly higher than the rest of the UK. In addition, the West & Wales companies have an EBITDA margin of 14.8% which is about 25% lower than the best performer NI & Isle of Man. Equally, 9pp less in CCE.

• On the contrary, companies in the Midlands have the lowest NWC % (7.2%)


Whilst Scottish companies have seen their net working capital performance deteriorate by 60%, companies in London and South East have managed to improve by 15%

Execu

tive su

mm

ary

Wh

at is drivin

g w

orking capital?

1. Indu

stry a

nalysis

2. G

eography

an

alysis3. Size

an

alysis


ance analysis

How

we ca

n su

pport youA

ppend

ices &

Con

tacts

London & South East

‑15%

Midlands

‑6%

North West

32%

Change in NWC % between 2010 and 2014

North East

‑1%

West & Wales

0%

Scotland

60%

NI & Isle of Man

37%

The deterioration of working capital performance in Scotland is driven mainly by the “Utility” sector. Although overall working capital ratio remains low, it has shown a significant jump in percentage terms in 2014.

Strong improvements in London and the South East were driven primarily by the “Healthcare”, “Packaging”, “Metals” and “Technology” sectors.


Only London, South East and the Midlands have improved DSO in the last five years...

DSO Trend

... and only London, South East and Scotland have improved their DIO

DIO Trend

However, most of the regions except London and South East have improved their DPO

DPO Trend

London & South East

26

25 25

26

23

37 38

45 44

48

38 37

44

47

41

4240

39

4846

41

39

40 4040

2010 2011 2012 2013 2014

41

44

3938

40

36

34

36

35

33

40 40 41

37

41

55 55

57

5958

4447

575454

3 3 3 33

14

13

14

1212

4342

44 44

46

2010 2011 2012 2013 2014

55

5253

5656

2011 2012 2013 2014

22

27

30

26

31

28

2524

29

24

44

40

36 3533

56

5961 61

68

42

39

43

45

42

68

70

73 73

69

54

67

575455

2010

Midlands

26

25 25

26

23

37 38

45 44

48

38 37

44

47

41

4240

39

4846

41

39

40 4040

2010 2011 2012 2013 2014

41

44

3938

40

36

34

36

35

33

40 40 41

37

41

55 55

57

5958

4447

575454

3 3 3 33

14

13

14

1212

4342

44 44

46

2010 2011 2012 2013 2014

55

5253

5656

2011 2012 2013 2014

22

27

30

26

31

28

2524

29

24

44

40

36 3533

56

5961 61

68

42

39

43

45

42

68

70

73 73

69

54

67

575455

2010

North East26

25 25

26

23

37 38

45 44

48

38 37

44

47

41

4240

39

4846

41

39

40 4040

2010 2011 2012 2013 2014

41

44

3938

40

36

34

36

35

33

40 40 41

37

41

55 55

57

5958

4447

575454

3 3 3 33

14

13

14

1212

4342

44 44

46

2010 2011 2012 2013 2014

55

5253

5656

2011 2012 2013 2014

22

27

30

26

31

28

2524

29

24

44

40

36 3533

56

5961 61

68

42

39

43

45

42

68

70

73 73

69

54

67

575455

2010

North West

26

25 25

26

23

37 38

45 44

48

38 37

44

47

41

4240

39

4846

41

39

40 4040

2010 2011 2012 2013 2014

41

44

3938

40

36

34

36

35

33

40 40 41

37

41

55 55

57

5958

4447

575454

3 3 3 33

14

13

14

1212

4342

44 44

46

2010 2011 2012 2013 2014

55

5253

5656

2011 2012 2013 2014

22

27

30

26

31

28

2524

29

24

44

40

36 3533

56

5961 61

68

42

39

43

45

42

68

70

73 73

69

54

67

575455

2010

NI & Isle of Man

26

25 25

26

23

37 38

45 44

48

38 37

44

47

41

4240

39

4846

41

39

40 4040

2010 2011 2012 2013 2014

41

44

3938

40

36

34

36

35

33

40 40 41

37

41

55 55

57

5958

4447

575454

3 3 3 33

14

13

14

1212

4342

44 44

46

2010 2011 2012 2013 2014

55

5253

5656

2011 2012 2013 2014

22

27

30

26

31

28

2524

29

24

44

40

36 3533

56

5961 61

68

42

39

43

45

42

68

70

73 73

69

54

67

575455

2010

Scotland

26

25 25

26

23

37 38

45 44

48

38 37

44

47

41

4240

39

4846

41

39

40 4040

2010 2011 2012 2013 2014

41

44

3938

40

36

34

36

35

33

40 40 41

37

41

55 55

57

5958

4447

575454

3 3 3 33

14

13

14

1212

4342

44 44

46

2010 2011 2012 2013 2014

55

5253

5656

2011 2012 2013 2014

22

27

30

26

31

28

2524

29

24

44

40

36 3533

56

5961 61

68

42

39

43

45

42

68

70

73 73

69

54

67

575455

2010

West & Wales

26

25 25

26

23

37 38

45 44

48

38 37

44

47

41

4240

39

4846

41

39

40 4040

2010 2011 2012 2013 2014

41

44

3938

40

36

34

36

35

33

40 40 41

37

41

55 55

57

5958

4447

575454

3 3 3 33

14

13

14

1212

4342

44 44

46

2010 2011 2012 2013 2014

55

5253

5656

2011 2012 2013 2014

22

27

30

26

31

28

2524

29

24

44

40

36 3533

56

5961 61

68

42

39

43

45

42

68

70

73 73

69

54

67

575455

2010

22 Bridging the Gap


Size analysis

Size

Financial performance

Geography

Ind

ust

ry

However, there is no evidence that

... and also have significantly higher

than large corporations

large corporationsstretch their creditorsmore than SMEs do

SMEs have

higher NWC %

DSO and DIO

Execu

tive su

mm

ary

Wh

at is drivin

g w

orking capital?

1. Indu

stry a

nalysis

2. G

eography

an

alysis3. Size

an

alysis


ance analysis

How

we ca

n su

pport youA

ppend

ices &

Con

tacts

24 Bridging the Gap

Small enterprises have significantly higher NWC% than large corporations but have closed the gap on mid-sized enterprises across the last five years

12.3%12.2%

12.8%

13.5%

13.0%

11.8%12.1%

12.6% 12.5%12.3%

Large corporations

Revenues >= GBP 1,000m

2010 2011 2012 2013 2014

8.0%

7.4%

6.9%

8.3%

7.3%

SME’s have significantly higher DSO and DIO days than large corporations, driving a 5.0 pp differential in NWC% between the two groupings. Whilst both SMEs and large corporations have delivered consistent improvements across the last five years, it is in mid-sized enterprises where working capital pressures have been felt most, with an increase of 4.3 pp across this period.

5.2 percentage

points5.0

percentage points

Small enterprisesRevenues < GBP 500m

Mid‑sized enterprises

Revenues between GBP 500m and GBP 1,000m


Small enterprises face challenges across the receivables and inventory elements of the working capital cycle compared to mid-sized enterprises and large corporations

DSO DSO DSODIO DIO DIODPO DPO DPO

Small enterprises Mid‑sized enterprises Large corporations

47

67

52 5348

38

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Small enterprises have higher DSO than large corporations which is likely to be driven by a combination of longer payment terms being granted (to secure business) as well as less effective order-to-cash management. Equally, small and medium sized enterprises also show high DIO. While this may be partly driven by the related mix of industry sectors, our analysis indicates that large corporates are generally more efficient in servicing demand at lower levels of stock holding.

Whilst small enterprises demonstrate the highest DPO, it is likely that this is a direct result of non collaborative payment stretch or a lack of process control. Such cash conservation strategies can have a negative cash impact in the medium to long term as suppliers withhold deliveries (or require cash on delivery) and credit insurers reassess coverage.

Contrary to popular belief, large corporations have lower DPO than small enterprises. Whilst there have been a few well publicised cases of apparent payment term pressure being placed on small enterprises, our survey does not support the fact that this practice is endemic across UK large corporates.

26 Bridging the Gap


Financial performance analysis

Finan

cia

l per

form

ance

Industry

Size

Geo

gra

ph

y

Bottom performers need to take on more debt to finance their investments

Better working capital leads to better conversion of

EBITDA into cash…

The gapbetween NWC % top and bottomperformers is significant

13.3 percentagepoints

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28 Bridging the Gap


Investment rate

7.6%

10.1%

NWC %

4.5%

17.8%

ND/EBITDA

2.18

1.93

Companies that are top performers in working capital within their industry sector are also better at generating cash. This is highlighted by CCE that is 9.8pp higher than bottom working capital performers. If bottom performers (lower quartile) were to improve

87.5%

77.7%

CCE

Top performers

Bottom performers

9.8 percentage

points

their CCE to top performers’ levels, they would be able to generate extra GBP 5bn in operating cash flow

Top performers in working capital also require less debt, demonstrated by a lower Net-Debt-to-EBITDA ratio

30 Bridging the Gap


Summary Execu

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at is drivin

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orking capital?

1. Indu

stry a

nalysis

2. G

eography

an

alysis3. Size

an

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ance analysis

How

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In the UK there is an opportunity to release GBP 24.2bn if under-performers improve to the next quartile

Working capital

£ ££GBP 24.2bn

£

£ £

32 Bridging the Gap

How we can support you

Addressing the key levers: • Identification, harmonisation and improvement of

commercial terms

• Process optimisation throughout the end-to-end working capital cycles

• Process compliance and monitoring

• Creating and embedding a ‘cash culture’ within the organisation, optimising the trade-offs between cash, cost and service

21

34

Complete a working capital benchmarking exercise to compare performance against peers and identify potential improvement opportunities

Assist the realisation of sustainable working capital reduction by implementing robust, efficient and collaborative processes

Perform a diagnostic review to identify ‘quick wins’ and longer-term working capital improvement opportunities

Develop detailed action plans for implementation to generate cash and make sustainable improvements


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at is drivin

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orking capital?

1. Indu

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nalysis

2. G

eography

an

alysis3. Size

an

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ance analysis

How

we ca

n su

pport youA

ppend

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Con

tacts

Accounts receivable

• Credit risk policies• Aligned and optimised

customer terms• Billing timeliness

and quality• Contract and

milestone management

• Prioritised and proactive collection procedures

• Systems-based dispute resolution

• Dispute root cause elimination

Accounts payable

• Consolidated spending• Increased control with

centre-led procurement• Avoid leakage with

purchasing channels• Payment terms

• Supply chain finance• Payment methods• Eradicate early payments

Examples of areas where PwC could help you to release cash from working capital:

Inventory

• Lean and agile supply chain strategies

• Global coordination• Forecasting techniques• Production planning

• Accurate tracking of inventory quantities

• Differentiated inventory levels for different goods

• Balanced cash, cost and service considerations

Appendices

34 Bridging the Gap

Basis of calculations and limitations

Basis of calculationsThis study is based on financial analysis of the largest 500 UK companies. The Financial Services, Real Estate and Insurance sectors are excluded.

LimitationsCompanies have been assigned to countries based on the location of their headquarters. Although a significant part of their sales and purchases might be realised in that country, it does not necessarily reflect typical payment terms or behaviour in that country.

As the research is based on publicly available information, all figures are financial year-end figures. Due to the disproportionate efforts to improve working capital performance towards year-end the real underlying working capital requirement within reporting periods might be higher. Also, off-balance-sheet financing or the effect of asset securitisation have not been taken into account.

Metric Basis of calculation

NWC % (Net working capital %) NWC % measures working capital requirements relative to the size of the company.

(Accounts Receivable + Inventories – Accounts Payable) / Sales

DSO (Days Sales Outstanding) DSO is a measure of the average number of days that a company takes to collect cash after the sale of goods or services have been delivered.

Accounts Receivable / Sales x 365

DIO (Days Inventories On‑hand) DIO gives an idea of how long it takes for a company to convert its inventory into sales. Generally, the lower (shorter) the DIO, the better.

Inventories / Cost of Goods Sold x 365

DPO (Days Payables Outstanding) DPO is an indicator of how long a company takes to pay its trade creditors.

Accounts Payable / Cost of Goods Sold x 365

CCE (Cash Conversion Efficiency) CCE is an indicator of how efficiently a company is able to convert profits into cash.

Cash Flow from Operations / EBITDA

Investment Rate Investment Rate measures the amount of investment relative to the revenues of a company.

Capital Expenditure / Sales

ROC (Return on Capital) ROC is an indicator of profits as a proportion of a company’s capital.

EBIT x (1 – tax) / Average Total Capital

EBITDA Margin (Earnings before interest, taxes, depreciation and amortisation)

EBITDA Margin is an indicator of a company’s profitability level as a proportion of its revenue.

EBITDA / Sales

Cost of Debt Cost of Debt is the effective rate that a company pays on its debt.

Interest Expense / Average Total Debt


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36 Bridging the Gap

In the UK and across all sectors there is a total cash opportunity from working capital of more than £24bn primarily concentrated in London & South East

Sector London & S East West & Wales Midlands North East Scotland North West N .I & Isle of Man Total

Retail & consumer 3,138 2,197 925 176 78 253 10 6,778

Energy, utilities & mining 3,892 51 366 39 254 104 28 4,734

Communications 2,245 20 2,265

Engineering & construction 1,375 73 458 15 1,921

Industrial manufacturing 948 81 175 78 324 93 1,699

Aerospace, defence & security 1,640 11 24 1,676

Metals 1,110 13 1,123

Hospitality & leisure 975 109 1,084

Pharmaceuticals & life sciences 909 2 911

Entertainment & media 576 3 3 63 89 733

Transportation & logistics 381 25 41 3 76 525

Automotive 13 11 126 64 215

Technology 218 17 4 27 267

Healthcare 152 13 4 169

Forest, paper & packaging 64 22 4 90

Chemicals 20 29 9 58

Region total 17,656 2,404 1,877 808 742 629 127 24,247

Total cash opportunity from working capital (million GBP)

High opportunity Low opportunity


Sampled companies by sector and macro-region

Sector London & S East West & Wales Midlands North East Scotland North West N.I & Isle of Man Total

Aerospace, defence & security 14 2 1 1 18

Automotive 3 1 4 1 1 10

Chemicals 4 1 2 2 9

Communications 16 2 1 19

Energy, utilities & mining 35 7 5 6 9 4 3 69

Engineering & construction 15 6 10 4 35



Healthcare 9 1 1 1 12

Hospitality & leisure 13 10 1 24

Industrial manufacturing 48 6 8 6 4 8 80

Metals 14 1 15

Pharmaceuticals & life sciences 7 1 1 9

Retail & consumer 51 4 15 8 3 12 2 95

Technology 27 2 2 1 3 2 37

Transportation & logistics 7 3 3 1 17

Total 302 26 59 38 23 40 9 496

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38 Bridging the Gap

NWC/Sales by sector and macro-region


Aerospace, defence & security 16.1% 6.2% 21.5% 2.3% 15.9%

Automotive 5.9% 16.4% 2.8% 1.2% 15.9% 4.4%

Chemicals 13.4% 17.7% 24.8% 21.1% 14.8%

Communications -3.9% 6.6% -6.1% ‑3.8%

Energy, utilities & mining 6.1% 10.3% 21.7% 11.1% 6.9% 13.0% 7.0% 6.5%

Engineering & construction 15.9% 8.6% 49.5% 14.1% 20.1%

Entertainment & media 5.8% 12.8% 6.7% 24.2% 46.3% 6.4%

Forest, paper & packaging 10.2% 15.3% 11.8% 10.6%

Healthcare 17.7% 11.7% 5.4% 44.2% 17.5%

Hospitality & leisure -1.7% -3.3% -5.6% ‑1.9%

Industrial manufacturing 28.3% 15.0% 13.0% 14.6% 28.2% 20.5% 25.3%

Metals 7.9% 20.6% 8.0%

Pharmaceuticals & life sciences 20.5% 9.7% 23.3% 20.5%

Retail & consumer 3.4% 16.5% 11.3% -2.3% 27.8% 4.8% 1.1% 4.6%

Technology 15.3% 28.7% 19.3% 18.8% 7.0% 0.2% 15.4%

Transportation & logistics 1.5% -4.4% 2.9% 9.2% 2.1% 1.5%

Total 7.3% 14.2% 7.2% 9.6% 8.0% 10.8% 9.0% 7.6%


DSO by sector and macro-regionE

xecutive

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Automotive 51 6 24 5 15 29

Chemicals 34 61 44 52 37






Healthcare 56 56 36 132 57

Hospitality & leisure 18 16 18


Metals 25 68 25


Retail & consumer 16 34 32 7 55 39 19 19

Technology 60 69 64 80 49 28 61


Total 38 40 35 26 48 44 47 38

40 Bridging the Gap

DIO by sector and macro-region



Automotive 33 71 76 78 76 64

Chemicals 37 84 104 110 44




Entertainment & media 36 33 1 36


Healthcare 101 25 8 115 94



Metals 76 71 76


Retail & consumer 48 52 63 18 116 40 47

Technology 53 116 71 10 54


Total 37 44 59 56 12 54 3 39


DPO by sector and macro-regionE

xecutive

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Automotive 69 10 99 79 27 83

Chemicals 19 76 32 56 23




Entertainment & media 280 54 561 32 273


Healthcare 84 43 38 47 80



Metals 68 61 68


Retail & consumer 53 19 50 35 40 70 21 49

Technology 61 43 57 203 104 140 62


Total 54 28 73 45 35 61 26 53

42 Bridging the Gap

Authors of the study

Daniel WindausUK Partner, Lead AuthorT: +44 20 7804 5012E: [email protected]

Daniel is a partner in our working capital practice, with over 16 years of working capital experience. He has advised company management and private equity investors on improving cash flow throughout Europe and North America.

Saverio MitraniManagerT: +44 7711 562120 E: [email protected]

Saverio is a manager in the firm’s working capital practice and has spent his career delivering working capital and cash flow related projects across the UK and internationally. His expertise covers all the key areas of working capital, from order-to-cash to inventory management and procure-to-pay.

Daniel Windaus

Saverio Mitrani

Contacts

Stephen TebbettDirectorT: +44 20 7213 5511E: [email protected]

Stephen is a working capital director working across the UK regions. He has a proven track record of complex working capital change programmes across a diverse range of industries and company sizes. Prior to joining PwC Stephen worked in the telecoms sector.

Stephen Tebbett

Glen Babcock

Glen BabcockUK PartnerT: +44 20 7804 5856E: [email protected]

Glen is a partner in our working capital practice, leading our work across the regions of the UK. He has worked with companies across the UK, Europe and internationally focusing on cash flow improvement and cost reduction.

Simon BoehmeDirectorT: +44 20 7212 6927E: [email protected]

Simon is a director in our working capital practice with over 10 years of working capital experience. He advises corporates on working capital improvement across Europe, the Middle East and Asia.

Simon Boehme

Robert SmidUK PartnerT: +44 20 7804 3598E: [email protected]

Robert leads our working capital practice and brings over twenty years of working capital advisory experience. He has made an instrumental difference to the free cash flow and balance sheet structure of many companies.

Robert Smid

43

Denmark

Bent Jorgensen T: +45 3945 9259E: [email protected]

Middle East

Mihir Bhatt T: +971 4304 3641 E: [email protected]

Malaysia

Ganesh Gunaratnam T: +603 2173 0888E: [email protected]

Switzerland

Reto Brunner T: +41 58 792 1419 E: [email protected]

Germany

Rob KortmanT: +49 1709 879253 E: [email protected]

Finland

Michael HardyT: +358 50 346 8530E: [email protected]

Turkey

Gokdeniz GurT: +90 212 376 5332 E: [email protected]

The Netherlands & Belgium

Danny Siemes T: +31 88 792 42 64 E: [email protected]

France

Francois GuilbaudT: +33 156 578 537 E: [email protected]

Hong Kong

Ted Osborn T: +852 2289 2299E: [email protected]

Norway

Jørn Juliussen T: +47 95 26 00 60E: [email protected]

USA

Paul GaynorT: +1 925 699 5698E: [email protected]

Spain

Josu EcheverriaT: +34 91 598 4866E: [email protected]

Singapore

Peter Greaves T: +65 6236 3388E: [email protected]

CEE

Petr SmutnyT: +42 25 115 1215 E: [email protected]

Italy

Riccardo Bua OdettiT: +39 026 672 0536 E: [email protected]

Sweden

Jesper LindbomT: +46 70 9291154 E: [email protected]

Working Capital Management Global Network

Australia

David Pratt T: +612 8266 2776 E: [email protected]

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Austria

Christine CatastaT: +43 1 501 88 1100 E: [email protected]

pwc.com/workingcapitalsurvey

PwC helps organisations and individuals create the value they’re looking for. We’re a network of firms in 157 countries with more than 195,000 people who are committed to delivering quality in assurance, tax and advisory services. Find out more and tell us what matters to you by visiting us at www.pwc.com.

This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, PwC does not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.

© 2015 PwC. All rights reserved. PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. Please see www.pwc.com/structure for further details.

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