Cash for Growth
Working Capital in the
Consumer Goods Sector
December 2014
Foreword
Welcome to PwC’s Working Capital Survey of the Consumer
goods sector. Working capital is the lifeblood of every
company and a barometer for how freely cash flows. In
efficiently run businesses, cash runs freely; in others, cash
becomes tied up in working capital, restricting the company’s
ability to grow. This is particularly true for the consumer
goods sector, which are typically under significant margin
pressures from their customer base and are facing volatile
commodity pricing in their supply chain.
John Maxwell
Partner – Consumer
Sector Market Leader
In this survey, we look at the key working capital trends across
the globe in the consumer goods sector. Among other
findings, overall working capital performance suggest that
cash is returning to the forefront of companies’ agendas as a
source of funding for future growth.
Globally, PwC is working with many companies to help
optimise working capital and achieve sustainable performance
improvement. As consumer goods companies seek to
strengthen their balance sheets in the months and years
ahead, many can likely benefit by taking a long, hard look at
their working capital efficiency. Thank you for reading and we
hope you enjoy this report.
2
PwC – Cash for Growth
Executive summary
Working capital can deliver cash today, for growth
tomorrow
Globally, the largest companies within the consumer goods
sector have experienced an uncertain trading environment which
has caused revenue growth to plateau, with businesses
struggling to replicate the levels of growth achieved in 2010.
Daniel Windaus
Partner– Working
Capital Management
Rob Kortman
Director – Working
Capital Management
As a result of the difficulties, many companies have turned their
attention towards cash management and optimising their
operations to release cash from working capital. This effort has
been reflected in better working capital performance across the
sector since 2011, with European companies improving the most.
Globally, the drivers of the trend have been better receivables
and payables management. However in Europe, performance
has improved across all working capital cycles, with enhanced
inventory management being a key factor.
To return to the levels of revenue growth achieved in 2010,
companies need to invest in their future, which will require
significant extra cash over the next few years. Our survey shows
that if companies were to move to the next performance quartile,
they would generate a total of €9bn of cash, while moving to
upper quartile performance would release €13bn of cash. Cash is
at your finger-tips.
3
Whilst revenue growth has stalled in recent years…
Total global revenue in the consumer goods sector
Number of companies in the study
Revenue
YoY revenue growth
31
66
Americas
Asia, Africa & Australasia
Europe
60
Revenue value € billions
400
16%
350
14%
13.3%
300
12%
250
10%
200
8%
7.1%
150
6%
100
4.0%
3.7%
50
4%
2%
0
0%
2009
2010
2011
2012
2013
Revenue distribution of companies in the study
€ 78 billion
Americas
Asia, Africa & Australasia
€ 32 billion
€ 257 billion
4
PwC – Cash for Growth
Europe
Sales for the largest 157 companies in the
consumer goods sector grew by 31% over the past
four years equivalent to a Compound Annual
Growth Rate (CAGR) of 7%. This was primarily
achieved in 2010 and 2011 with growth rates
plateauing since.
… companies have focused on improving working capital
performance as a source of cash
Working capital performance across the sector has
improved since 2011, with a 8.4% improvement in
days working capital over the period which has
resulted in the release of €0.5bn cash.
50
60
45
55
40
50
35
47.6
46.5
45.5
44.2
30
43.6
25
45
40
20
35
15
30
10
25
5
0
20
2009
2010
2011
Net Working Capital
2012
2013
DWC
€0.2bn
decrease in
working capital
since 2012
4.2%
decrease in days
working capital
since 2012
5
DWC
Working capital € billions
These improvements suggest that cash is returning
to the forefront of companies’ agendas as a source of
funding for future growth.
Industrial products sector working capital trend
Working capital performance has improved in all regions,
with Europe achieving the greatest development
Europe
-9.1%
43.5
42.9
42.6
39.4
2009
2010
38.7
2011
2012
2013
Americas
46.9
2009
44.6
2010
48.0
2011
-1.6%
44.7
2012
Asia, Africa & Australasia
44.0
52.8
54.1
54.2
2009
2010
2011
57.7
-8.7%
52.7
2013
2012
2013
Key
Days of working capital
Percentage change between 2012 and 2013
6
PwC – Cash for Growth
All working capital cycles have improved or remain consistent
Global working capital performance
0.7
day
improvement
Days sales outstanding
47.5
47.3
49.8
2009
2010
2011
48.1
47.4
2012
2013
no change
Days inventory on-hand
34.7
35.8
38.3
2009
2010
2011
Days payables outstanding
35.8
36.7
36.7
2012
2013
2009
1.0
day
improvement
38.8
40.6
39.4
40.4
2010
2011
2012
2013
European working capital performance
1.3
day
improvement
Days sales outstanding
1.9
day
improvement
Days inventory on-hand
52.1
50.1
51.4
50.7
49.4
38.0
39.1
2009
2010
2011
2012
2013
2009
2010
Days payables outstanding
0.6
day
improvement
41.3
40.8
38.9
47.2
49.7
49.3
48.9
49.5
2011
2012
2013
2009
2010
2011
2012
2013
Working capital
performance has
improved by 1.7 days
globally between 2012
and 2013. The drivers
of the trend are
improvements within
the receivables and
payables cycles.
European companies
have achieved an even
more notable
improvement of 3.8
days over the past
year. Enhanced
receivables and
inventory performance
have been the key
drivers, with
receivables
performance at a 5year best.
7
Performance varies widely within the industry…
Working capital performance range
Days
DWC
Working
Capital
37
Days
Payables
DPO
Outstanding
59
35
50
Upper Quartile
Median
Days
Inventories
DIO
On-hand
27
Days
Sales DSO
Outstanding
40
41
0
20
40
Min/Max Range
54
60
80
100
Working capital performance ranges widely across the consumer goods sector,
with a median of 37 days.
Notably, performance variance is wide across all working capital cycles,
suggesting there is room for improvement across all areas.
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PwC – Cash for Growth
… with improvements achieved across good performers and
bad performers
The Leaders
54% of companies with days
working capital above the
industry median have
improved their performance
over the past year.
53%
54%
The Laggards
53% of those
performing below the
median improved.
Interestingly, 18% of companies operating below the industry median deteriorated by more than 10 days, whilst this was only 8%
for those operating above the industry median.
9
Globally, €9bn to €13bn of cash could be released from working
capital across the sector
Working
capital
€9bn to
€13bn
10
PwC – Cash for Growth
Our approach to sustainable working capital
Working with a global FMCG on an operational working capital
improvement programme
The key issue
The company decided to increase its focus on cash management in order to
improve its position in the competitive landscape. An internal programme was
initiated to start the project, but results were limited due to the crossfunctional complexity in the organisation.
Management realised that a dedicated focus was required to achieve the cash
objectives.
How we helped
Our team worked with the company to assess their working capital
improvement potential and to investigate how the introduction of a cashfocused culture could be elevated on the agenda.
We performed an order to cash (debtors) working capital diagnostic review.
This identified c€350m of benefit potential.
Our fast-paced approach was essential to raise organisational awareness of
poor cash performance and raise receptiveness to change behaviours.
The order to cash (OTC) workstreams focused on the standardisation of the
end to end process, the implementation of a global credit policy, the
development of local actions plans and the standardization of the credit
collection approach and payment terms across the business units.
The result: we identified and delivered net working capital cash
benefits close to €360m , reducing DSO from 61 days to 52 days.
A “blue-print” for improvement was developed and piloted in the largest
operating entity.
We supplement our working capital and cash management methodologies
with core consulting approaches to make sure that improvements are tangible
and sustainable.
Establishment of a global OTC competency centre provided board-level
support and commitment to “roll-out across the globe” leading practice
policies, processes, metrics and IT enhancements.
All business units and sales organizations were integrated into the end to end
OTC process.
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How can we support you?
12
1.
Complete a working capital benchmarking exercise to compare performance
against peers and identify potential improvement opportunities.
2.
Perform a diagnostic review to identify ‘quick wins’ and longer-term
working capital improvement opportunities.
3.
Develop detailed action plans for implementation to generate cash and
make sustainable improvements.
4.
Assist the realisation of sustainable working capital reduction by
implementing robust, efficient and collaborative processes.
PwC – Cash for Growth
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.
Examples of areas where PwC could help you to release cash from working capital
Cash culture & visibility - The aim is to create a culture
whereby cash is important & performance is clearly visible
Key cash driver focus areas:
•
•
•
•
•
•
Cash related management incentives
Top management sponsorship
Clear roles & accountability's
Corporate Working capital framework
Defined targets per division / country
Working capital reporting dashboards by division / country
Accounts payable
•
•
•
•
•
•
•
“Centre Led” procurement
Consolidated spending
Aligned and optimised supplier terms
Supply Chain Finance
Purchasing channels (to avoid contract leakage)
Payment method and frequency
Early payment prevention
Accounts receivable
• Credit risk policies
• Aligned and optimised customer terms
• Optimised Customer marketing agreements and
processes
• Billing timeliness and quality
• Contract and milestone management
• Prioritised and proactive collection procedures
• Systems-based dispute resolution
• Dispute root cause elimination
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
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PwC’s Working Capital Management Group brings together
experienced practitioners from across the world. Our people
have many years of experience at delivering world class
working capital performance both as consultants and from
time spent in industry.
To find out more, please go to www.pwc.com/working capital
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PwC – Cash for Growth
For more information about working capital in the consumer
industry, please contact:
Daniel Windaus
Rob Kortman
John Maxwell
Neil Sutton
Mike Jervis
Partner, Working Capital
T: +44 (0)20 7804 5012
E: [email protected]
Director, Working Capital
T: +44 (0) 7803 859001
E: [email protected]
Consumer Sector Market Leader
T: +1 (973) 236-4780
E: [email protected]
Global Retail and Consumer Deals Leader
T: +44 (0) 20 721 31075
E: [email protected]
UK Retail and Consumer Deals Leader
T: +44 (0) 207 212 6610
E:[email protected]
Our global network
Asia
Tze Wee Wee
T: +65 6236 4619
E: [email protected]
Austria
Christine Catasta
T: +43 1 501 88 1100
[email protected]
Australia
David Pratt
T: +61 (2) 8266 2776
E: [email protected]
Belgium
Damien McMahon
T: +32 2 710 9493
E: [email protected]
CEE
Petr Smutny
T: +42 25 115 1215
E: [email protected]
Denmark
Bent Jorgensen
T: +45 3945 9259
E: [email protected]
Finland
Michael Hardy
T: +358 50 346 8530
E: [email protected]
France
Francois Guilbaud
T: +33 156 578 537
E: [email protected]
Germany
Joachim Englert
T: +49 699 585 5767
E: [email protected]
Italy
Riccardo Bua Odetti
T: +39 026 672 0536
E: [email protected]
Middle East
Matt Wilde
T: +971 50 900 3071
E: [email protected]
The Netherlands
Rick van Dommelen
T: +31 887 926 476
E: [email protected]
Norway
Jonathan Pycroft
T: +47 952 601 97
E: [email protected]
Spain
Josu Echeverria
T: +34 91 598 4866
E: josu.echeverria.larranga@
es.pwc.com
Sweden
Jesper Lindbom
T: +46 70 9291154
E: [email protected]
Switzerland
Reto Brunner
T: +41 58 792 1419
E: [email protected]
Turkey
Husnu Dincsoy
T: +90 212 376 5308
E: [email protected]
USA
Paul Gaynor
T: +1 925 699 5698
E: [email protected]
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