Advisory Perfect Timing - PwC€¦ · Perfect Timing • 2015 Norway Working Capital Survey 22...

Perfect Timing2015 Norway Working Capital Survey

Advisory

December 2015

PwC

December 2015

Contents

2

SummaryGeographic

analysisSize

analysisSector

analysis

Detailed sector

analysis

How we can support

you

Perfect Timing • 2015 Norway Working Capital Survey

What is working capital?

Management analysis

Sample appendix

Summary

PwC

December 2015

Norwegian companies have an untapped potential for cash release by improving their working capital levels


4

7% of

revenue

The companies in our analysis have the potential to generate cash equivalent to 7% of their revenue by improving their performance and reaching their own sector’s upper quartile

Norwegian companies are suffering from an imbalance between debtors and creditors, strictly opposite of global figures. This suggests a potential in harmonizing terms

80% of those who have taken action to improve their operative working capital have experienced improved liquidity

DSO45,2

DPO27,6

Norwegian companies have had two consecutive years of working capital improvement, and are even one year ahead of the global trend

What is working capital?

PwC

December 2015

DPO

DAYS PAYABLES OUTSTANDING

DPO measures how long it takes a

company to pay its suppliers

DWC

DAYS WORKING CAPITAL

DWC is a measure that represents

how many days of sales that are tied up to finance day-to-day operations

DSO

DAYS OF SALES OUTSTANDING

DSO measures how long it takes to

receive payments from customers

Working capital is the capital tied up in the business to finance its day-to-day operations


6

DIO

DAYS INVENTORY ON HAND

DIO is a way to measure how long it takes to turn the

inventory into sales

= + -

PwC

December 2015

Good working capital management can release cash for growth, dividends and refinancing

Pay off debt

Pay dividends to stakeholders

Invest in future growth

• Unlocking cash within the company is much cheaper than alternatives from investors or banks

• Good working capital management can release cash and give you the opportunity to invest in future growth

• Paying dividends will keep the stakeholders satisfied, and the necessary cash could be released through working capital

• Alternatively, the company can use the cash to pay down debt, which can initially lead to better credit ratings and then lower debt costs and increased profitability


7

PwC

December 2015

There are four factors explaining a firm’s working capital level


8

Geographic analysis

PwC

December 2015

2014 represented the first improvement in global working capital following recent years’ deterioration

Global DSO Global DIO Global DPO

After four years with consecutive DWC deterioration, 2014 showed an improvement. This was mainly due to improvements in DSO and DIO, but a deterioration in DPO diminished the improvement to some extent

40,1 41,3 41,3 41,1 40,9

20142013201220112010

Global DWC


10

43,6 44,5 44,3

45,5 45,3

20142013201220112010

52,4 53,2 52,5 52,8 52,2

20142013201220112010

57,4 57,7 56,8 59,1 58,6

20142013201220112010

Source: PwC’s 2015 Annual Global Working Capital Survey

PwC

December 2015

There are large regional differences in working capital performance


11

36 46 4833 38 64 28

• Cultural characteristics are reflected in the differences in days working capital across regions of the globe

• Middle East’s relative poor performance is largely due to having the absolute highest DSO

• Australasia’s top performance stems from a beneficial spread between a relatively low DSO and significantly larger DPO, combined with the second lowest DIO among the regions

• The majority of regions have continued a strong focus on improving inventories. USA/Canada are enjoying a consistently low DIO, while Africa has the highest DIO following a notable deterioration over the last five years

• Western Economies are the only regions where DPO has deteriorated in the last five years

PwC

December 2015

DWC in Norway

DIO in Norway DPO in Norway

Norwegian companies have had an improvement in DWC, one year prior to the global trend


12

Average DWC-levels deteriorated from 2009-2012, but started to improve in 2013, one year earlier than the global trend. In 2014 Norwegian companies are at their best average DWC-performance in 5 years. Both DSO and DIO have improved, while DPO has deteriorated consistently since 2011

46,3

47,0 46,9 47,0

45,6 45,2

2009 2010 2011 2012 2013 2014

31,2 31,4

32,9 33,1

31,4

30,5

2009 2010 2011 2012 2013 2014

29,0 29,8

30,7

29,3

28,1 27,6

2009 2010 2011 2012 2013 2014

DSO in Norway

48,5 48,6

49,2

50,7

48,9

48,1

2009 2010 2011 2012 2013 2014

PwC

December 2015

Norwegian companies’ working capital is suffering from an imbalance between debtors and creditors


13

DSO

45,2

DPO

27,6

• The big difference between DSO and DPO is noticeable, as it suggests that companies get paid by their customers much later than they pay their own suppliers

• This can indicate that Norwegian companies tie up unnecessarily large amounts of cash in sales outstanding, while they are benefitting their suppliers by paying them early

• The imbalance suggests that Norwegian companies would benefit from harmonizing their terms

Size analysis

PwC

December 2015

Small companies have significantly higher Days Working Capital than large corporations

• We see a significant difference between large, medium and small companies' working capital, with large companies as top performers

• Small companies reduced the gap in 2013, but an improvement for large companies in 2014 widened the gap again. Large companies have in average 12 days lower days working capital than small companies

• Despite different yearly development the last five years, working capital levels are almost at the same level in 2014 as in 2009 independent of size


15

51 50

50 52

50 51

45 45

46 47 47

37

39 38

41 42

39

2009 2010 2011 2012 2013 2014

Small Medium Large

Size is defined through revenue as follows:Small = MNOK 100 – 500Medium = MNOK 500 – 1.000Large = > MNOK 1.000

PwC

December 2015

Larger companies have better DSO and DIO, while smaller companies have better DPO


16

Large companies have a better DSO than medium- and small sized companies

This can be an indication of bigger companies having a better bargaining power when dealing with customers

Small companies in general have a larger DIO than medium- and large companies

However, the DIO trend for all sizes have been improving over the last three years

Small companies are better at DPO than both large and medium sized companies

However, this gap has tightened the last few years

46 47 47 48 47

47

41 41 42

44

46

44

37 36

35 36

37 36

2009 2010 2011 2012 2013 2014

Average DSO

Small Medium Large

32 32

33 33

31

30 29

32 32

27

30

31

29 29

2009 2010 2011 2012 2013 2014

Average DIO

Small Medium Large

27

29 30

29 29

28

25

26

28 27

28

26 27

26

25

26

2009 2010 2011 2012 2013 2014

Average DPO

Small Medium Large

PwC

December 2015

By improving to the sector's top performing quartile, companies could release on average 7% of revenue


17

On average the companies defined as large could potentially release cash equivalent to 7% of their revenue

On average the companies defined as medium could potentially release cash equivalent to 9% of their revenue

On average the companies defined as small could potentially release cash equivalent to 9% of their revenue

…in total, the companies in our survey could potentially generate 291 billion NOK by improving to their own sector’s best quartile

7 % of revenue

9 %

7 %

9 %

291 bNOK

PwC

December 2015

Basis for calculationInput to illustration

• Average performing company

• Sector: Industrial manufacturing

• Revenue: 700 MNOK

• Company level: DWC 60

• Q1 level in sector: DWC 33

DWC 60 days DWC 33 days

An average company in the industrial manufacturing sector could potentially release 52 MNOK

+


18

-

27 days

=

52 MNOK in cash

Improvement to match the best quartile in the sector

NWC = DWC

365Revenue*

Todays performance for an average performing company

New net working capital… …and released cash

Sector analysis

PwC

December 2015

Days working capital varies considerably both between and within sectors


20

3

35

0

26

2

52

23

57

31

61

17

7279

34

118

2133

92

31

10

50

4

39

11

65

186

19 21 26 28 36 42 42 48 59 60 68 84 107

Working capital levels varies significantly among different sectors. In the Norwegian survey Communication has the lowest DWC level while Fisheries has the highest level

On global level Pharmaceuticals & life sciences has the highest DWC while Hospitality and leisure has the lowest DWC

There is a significant difference between top and bottom performers within all the sectors in both surveys

Management analysis

PwC

December 2015

There are four internal factors driving the working capital performance


22

MonitoringAnalysis of operational data to measure terms, policies and procedure compliance and have relevant working capital management KPIs to ensure traceability of operational performance

Culture and managementAccountability and responsibility for working capital management, and top managers involved from a monitoring perspective

Payment termsFull understanding and transparency of all terms in place, and matched with size and nature of contract

Internal processesUnderstanding of each end to end process and individual process steps continuously challenged aiming to reduce working capital and maximise cash flow impact

PwC

December 2015

• The result of the survey consists of 144 respondents

• All companies have a minimum revenue of 100 MNOK

• 22% of the respondents have revenues above 1000 MNOK

• 78% of the respondents are CFOs of their respective companies

We have used a survey to better understand Norwegian companies’ working capital management


23

PwC

December 2015

85% of the respondents have taken action to improve their working capital…

…of the companies have tried to improve their

working capital


24

85%

52%

Increased supplier payment terms

33%

Reduced customer credit time

65%

Reduced inventory stock

33%

Reduced internal billing time

PwC

December 2015

…80% of those who have taken action experienced improved liquidity

…of the companies have tried to improve their

working capital


25

To a large extent

27%

To a small extent

2%

No improvement

20%

To some extent

51%

PwC

December 2015

Focus on payables is lower than receivables and inventory in a monitoring perspective

% formal reporting

Only 42% of the companies in our survey report on payables

The focus on inventory and receivables seems to be higher, a bit more than two thirds report on both

67%74% 42%


26

Receivables Inventory Payables

PwC

December 2015

Reporting frequency is considerably higher on receivables than on payables and inventory

% reporting daily or weekly

49% report on receivables on a daily or weekly basis, mainly related to their dunning processes

It is more common to report on inventory and payables on a monthly basis


27

Inventory Payables

49% 14% 18%

Receivables

How we can support you

PwC

December 2015

How we can support you


29

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

Addressing the key factors:

• Identification, harmonization and improvement of commercial terms

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

• Process compliance and monitoring

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

PwC

December 2015

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


30

Accounts receivable

Accounts payable

Inventory

• Prioritised and proactive collection procedures

• Systems-based dispute resolution

• Dispute root cause elimination

• Credit risk policies

• Aligned and optimised customer terms

• Billing timeliness and quality

• Contract and milestone management

• Purchasing channels (to avoid contract leakage)

• Payment method and frequency

• Early payment prevention

• “Centre Led” procurement

• Consolidated spending

• Aligned and optimised supplier terms

• Supply Chain Finance

• Accurate tracking of inventory quantities

• Differentiated inventory levels for different goods

• Balanced cash, cost and service

• Lean and agile supply chain strategies

• Global coordination

• Forecasting techniques

• Production planning

Detailed sector

analysis

PwC

December 2015

Automotive


32

Key figures for 2014

NWC is on average 14% of revenue

EBITDA is on average 3% of revenue

61

43

31

Median

DWC worst quartile

DWC best quartile

49,7

48,1

51,6

53,7

51,1

47,7

2009 2010 2011 2012 2013 2014

19,5

18,1

19,2

18,3

17,7 17,7

2009 2010 2011 2012 2013 2014

51,151,7

56,157,0

54,2

49,7

2009 2010 2011 2012 2013 2014

20,9 21,723,8

21,6 20,819,7

2009 2010 2011 2012 2013 2014

DWC DIO DPODSO

The figures above are calculated as an average for the sector

PwC

December 2015

Chemicals


33




79

65

31

Median

66,372,3

61,1

71,3 73,1

59,6

2009 2010 2011 2012 2013 2014

48,152,6

48,0 46,0

51,8

43,1

2009 2010 2011 2012 2013 2014

51,255,0

51,1

64,058,0

47,6

2009 2010 2011 2012 2013 2014

33,035,4

37,9 38,836,7

31,1

2009 2010 2011 2012 2013 2014

DWC worst quartile

DWC best quartile

DWC DIO DPODSO


PwC

December 2015

Engineering & construction


34




72

43

17

Median

58,9

60,760,3

62,6

60,8

59,3

2009 2010 2011 2012 2013 2014

71,6

73,1 73,273,8

70,2

72,9

2009 2010 2011 2012 2013 2014

20,5

22,3

23,8

24,5 24,4

23,0

2009 2010 2011 2012 2013 2014

33,2

34,7

36,7

35,7

33,7

36,6

2009 2010 2011 2012 2013 2014

DWC worst quartile

DWC best quartile

DWC DIO DPODSO


PwC

December 2015

Energy, utilities & mining


35




52

26

2

Median

27,0

30,3

24,9

30,9

27,4 27,7

2009 2010 2011 2012 2013 2014

53,857,8

47,6

56,2

47,750,3

2009 2010 2011 2012 2013 2014

5,44,8 5,0

5,9

4,9 5,0

2009 2010 2011 2012 2013 2014

32,2 32,3

27,6

31,3

25,227,6

2009 2010 2011 2012 2013 2014

DWC worst quartile

DWC best quartile

DWC DIO DPODSO


PwC

December 2015

Fisheries


36




186

139

21

Median

133,8

107,1

124,8 122,7112,1 106,9

2009 2010 2011 2012 2013 2014

40,6 40,1

32,934,9

41,7

36,8

2009 2010 2011 2012 2013 2014

124,8

99,6

123,0 123,6

99,7 97,1

2009 2010 2011 2012 2013 2014

31,5 32,631,0

35,7

29,227,1

2009 2010 2011 2012 2013 2014

DWC worst quartile

DWC best quartile

DWC DIO DPODSO


PwC

December 2015

Industrial manufacturing


37




92

61

33

Median

64,7

66,065,5

67,7

66,0

68,3

2009 2010 2011 2012 2013 2014

49,2

52,3 52,051,6

51,9

49,8

2009 2010 2011 2012 2013 2014

44,0 44,1

46,2

47,1

43,9

47,2

2009 2010 2011 2012 2013 2014

28,5

30,4

32,7

31,0

29,8

28,6

2009 2010 2011 2012 2013 2014

DWC worst quartile

DWC best quartile

DWC DIO DPODSO


PwC

December 2015

Oil & Gas


38




26

10

0

Median

28,5

17,118,1 19,1

25,126,1

2009 2010 2011 2012 2013 2014

42,6

28,4

37,9

34,0 33,8

38,0

2009 2010 2011 2012 2013 2014

7,5

10,0

7,7 7,86,8

8,4

2009 2010 2011 2012 2013 2014

21,5 21,3

27,5

22,7

15,4

20,3

2009 2010 2011 2012 2013 2014

DWC worst quartile

DWC best quartile

DWC DIO DPODSO


PwC

December 2015

Pharmaceuticals & life sciences


39




118

68

34

Median

76,5 73,6

90,8

59,9

69,0

83,7

2009 2010 2011 2012 2013 2014

40,3 42,1

57,9

29,6

38,144,0

2009 2010 2011 2012 2013 2014

55,852,1

55,950,5

47,9

60,9

2009 2010 2011 2012 2013 2014

19,620,6

23,0

20,2

17,0

21,2

2009 2010 2011 2012 2013 2014

DWC worst quartile

DWC best quartile

DWC DIO DPODSO


PwC

December 2015

Retail & consumer


40




65

34

11

Median

41,2

43,1

44,4

43,8 43,6

42,5

2009 2010 2011 2012 2013 2014

38,238,5

39,9

38,8

38,3

37,1

2009 2010 2011 2012 2013 2014

33,1

34,6

35,3

34,234,5

33,1

2009 2010 2011 2012 2013 2014

30,1 30,0

30,8

29,2 29,2

27,7

2009 2010 2011 2012 2013 2014

DWC worst quartile

DWC best quartile

DWC DIO DPODSO


PwC

December 2015

Technology


41




57

37

23

Median

47,4

46,0

42,0

48,7

41,5 41,7

2009 2010 2011 2012 2013 2014

68,9

67,0

60,8

70,0

62,0 62,0

2009 2010 2011 2012 2013 2014

6,9

6,1

4,8

5,75,2 5,3

2009 2010 2011 2012 2013 2014

28,4 27,0

23,6

27,025,6 25,6

2009 2010 2011 2012 2013 2014

DWC worst quartile

DWC best quartile

DWC DIO DPODSO


PwC

December 2015

Transportation & logistics


42




39

19

4

Median

24,2

20,0 20,422,8

21,1 21,2

2009 2010 2011 2012 2013 2014

48,8

46,0 46,3

44,0

41,2 41,3

2009 2010 2011 2012 2013 2014

3,6

4,3 4,0

3,5 3,4

2,9

2009 2010 2011 2012 2013 2014

28,230,3 29,9

24,723,5 23,0

2009 2010 2011 2012 2013 2014

DWC worst quartile

DWC best quartile

DWC DIO DPODSO


PwC

December 2015

Communications


43




35

16

3

Median

16,5

20,922,8

29,1

15,9

19,4

2009 2010 2011 2012 2013 2014

52,549,8

56,7 58,2

47,4 49,5

2009 2010 2011 2012 2013 2014

2,8

2,32,1

2,9 3,0

2,5

2009 2010 2011 2012 2013 2014

38,9

31,2

36,0

32,034,4

32,5

2009 2010 2011 2012 2013 2014

DWC worst quartile

DWC best quartile

DWC DIO DPODSO


PwC

December 2015

Entertainment & media


44




50

28

10

Median

35,8

39,3

37,436,7

34,1

36,4

2009 2010 2011 2012 2013 2014

43,3

48,5

46,6

44,8

43,7

45,1

2009 2010 2011 2012 2013 2014

10,511,2

9,7 10,0

8,97,9

2009 2010 2011 2012 2013 2014

18,0

20,519,0 18,2 18,6

16,6

2009 2010 2011 2012 2013 2014

DWC worst quartile

DWC best quartile

DWC DIO DPODSO


Sample appendix

PwC

December 2015

Basis of calculations and limitations


46

LimitationsCompanies in this survey have been assigned to Norway based on the location of their headquarters. Although a significant part of their sales and purchases are likely to be in Norway, some activities may be overseas and therefore the numbers can reflect payment terms and behaviour in other countries

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

Companies with KPI’s (DSO, DIO, DPO and DWC) higher than 500 have been removed before the calculations

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 Inventory Outstanding) 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 / Sales x 365

DPO (Days Payables Outstanding) DPO is an indicator of how long a

company takes to pay its trade

creditors.

Accounts Payable / Sales x

365

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

PwC

December 2015

Sampled companies by sector and years


51

*Lower number of companies in 2014 due to late financial releasement date at time of analysis

Sector 2009 2010 2011 2012 2013 2014

Automotive 296 303 306 310 313 221

Chemicals 31 32 34 35 38 17

Communications 35 39 40 40 42 32

Energy, utilities & mining 200 204 204 206 209 153

Engineering & construction 438 454 485 507 545 350

Entertainment & media 100 161 100 98 100 68

Fisheries 81 85 88 91 94 50

Industrial manufacturing 661 676 691 700 708 429

Oil & Gas 28 27 28 25 28 23

Pharmaceuticals & life sciences 6 6 5 6 6 4

Retail & consumer 1079 1119 1152 1192 1228 757

Technology 86 90 97 103 103 72

Transportation & logistics 327 343 362 377 397 213

Total all sectors 3368 3539 3592 3690 3811 2389

PwC

December 2015

DWC by sector and years


50

Sector 2009 2010 2011 2012 2013 2014 Average

Automotive 49,7 48,1 51,6 53,7 51,1 47,7 50,4

Chemicals 66,3 72,3 61,1 71,3 73,1 59,6 68,1

Communications 16,5 20,9 22,8 29,1 15,9 19,4 20,9

Energy, utilities & mining 27,0 30,3 24,9 30,9 27,4 27,7 28,1

Engineering & construction 58,9 60,7 60,3 62,6 60,8 59,3 60,5

Entertainment & media 35,8 39,3 37,4 36,7 34,1 36,4 36,6

Fisheries 133,8 107,1 124,8 122,7 112,1 106,9 118,6

Industrial manufacturing 64,7 66,0 65,5 67,7 66,0 68,3 66,3

Oil & Gas 28,5 17,1 18,1 19,1 25,1 26,1 22,3

Pharmaceuticals & life sciences 76,5 73,6 90,8 59,9 69,0 83,7 74,6

Retail & consumer 41,2 43,1 44,4 43,8 43,6 42,5 43,2

Technology 47,4 46,0 42,0 48,7 41,5 41,7 44,6

Transportation & logistics 24,2 20,0 20,4 22,8 21,1 21,2 21,6

Average all sectors 48,5 48,6 49,2 50,7 48,9 48,1 49,1

PwC

December 2015

DSO by sector and years


47

Sector 2009 2010 2011 2012 2013 2014 Average

Automotive 19,5 18,1 19,2 18,3 17,7 17,7 18,4

Chemicals 48,1 52,6 48,0 46,0 51,8 43,1 48,8

Communications 52,5 49,8 56,7 58,2 47,4 49,5 52,4




Fisheries 40,6 40,1 32,9 34,9 41,7 36,8 37,9


Oil & Gas 42,6 28,4 37,9 34,0 33,8 38,0 35,8


Retail & consumer 38,2 38,5 39,9 38,8 38,3 37,1 38,6

Technology 68,9 67,0 60,8 70,0 62,0 62,0 65,2



PwC

December 2015

DIO by sector and years


48

Sector 2009 2010 2011 2012 2013 2014 Average

Automotive 51,1 51,7 56,1 57,0 54,2 49,7 53,5

Chemicals 51,2 55,0 51,1 64,0 58,0 47,6 55,3

Communications 2,8 2,3 2,1 2,9 3,0 2,5 2,6




Fisheries 124,8 99,6 123,0 123,6 99,7 97,1 112,2


Oil & Gas 7,5 10,0 7,7 7,8 6,8 8,4 8,0


Retail & consumer 33,1 34,6 35,3 34,2 34,5 33,1 34,2

Technology 6,9 6,1 4,8 5,7 5,2 5,3 5,7



PwC

December 2015

DPO by sector and years


49

Sector 2009 2010 2011 2012 2013 2014 Average

Automotive 20,9 21,7 23,8 21,6 20,8 19,7 21,5

Chemicals 33,0 35,4 37,9 38,8 36,7 31,1 36,0

Communications 38,9 31,2 36,0 32,0 34,4 32,5 34,2




Fisheries 31,5 32,6 31,0 35,7 29,2 27,1 31,5


Oil & Gas 21,5 21,3 27,5 22,7 15,4 20,3 21,5


Retail & consumer 30,1 30,0 30,8 29,2 29,2 27,7 29,6

Technology 28,4 27,0 23,6 27,0 25,6 25,6 26,2



To discuss working capital opportunities with us, please get in touch

Thomas [email protected]+47 91 66 22 62

Jørn [email protected]+47 95 26 00 60

Date post:	15-Jun-2020
Category:	Documents
Upload:	others
View:	2 times
Download:	0 times

Advisory Perfect Timing - PwC€¦ · Perfect Timing • 2015 Norway Working Capital Survey 22...

Documents