www.pwc.com Working Capital the cheapest source of cash 2017 Middle East Working Capital study
Key findings Working capital performance has continued to deteriorate further across key Middle East territories 1 2 Middle market companies have seen a significant deterioration in working capital performance Top working capital performers in each sector continue to widen their lead against their peers across key financial metrics 3 4 Despite the overall negative working capital trend, there are companies in each sector that have been able to improve their working capital performance
An untapped source of cash Working capital performance has deteriorated significantly, each quarter, since the oil price decline in Q414 Since our last study, the Middle East has seen a continued lower oil price environment, an overall decline in revenues for those companies in our survey, and a further deterioration of working capital performance. FY16 has seen further 9 day (7%) deterioration in working capital performance, a cumulative 14 day (11%) deterioration since FY14. Most interestingly our latest study of working capital performance shows that while smaller companies were initially impacted by the lower oil price environment in FY15, FY16 has seen a significant deterioration of working capital performance for larger companies. Our study also however demonstrates that regardless of size or sector companies can improve their working capital performance. In addition to the cash benefits from better working capital management, leading working capital performers have demonstrated better KPIs across all key financial metrics. Working capital performance is often cited as one of the best indicators to demonstrate the quality of management.
Net Working Capital performance across regions, sectors and company size categories NWC days trend and oil price development USD/bbl 90 80 70 60 50 40 123 87 126 75 62 122 123 128 54 130 49 137 135 133 45 44 46 140 135 130 125 120 115 Days 30 20 110 10 105 0 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 Crude Oil Brent (Average of LTM daily closing quotes) NWC days Quarterly NWC days by country 180 (19%) 160 +11% +4% Days 140 120 80 +18% +11% 0% +14% (26%) +39% +11% 60 40 20 0 Kuwait Oman Qatar Saudi Arabia United Arab Emirates 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 Quarterly NWC days development by company size category (indexed) 130 120 110 90 80 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 Small Mid Large Very large
NWC performance improvers vs. non-improvers 2015-2016 by sector Transportation & logistics Communications Hospitality & leisure Energy, utilities & Mining Aerospace, defence & security Automotive Retail & consumer Chemicals Metals Pharmaceuticals & life sciences Industrial manufacturing Technology Engineering & construction Healthcare Forest, paper & packaging Improvers 69% 55% 45% 52% 48% 51% 49% 50% 50% 50% 50% 46% 54% 44% 56% 43% 57% 40% 60% 37% 63% 33% 33% 67% 14% 86% Non-Improvers % 67% 31% How we can help Phases in the journey Complete a working capital benchmarking exercise to compare performance against peers and identify potential improvement opportunities 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 Assist the realisation of sustainable working capital reduction by implementing robust, efficient and collaborative processes 1 2 3 4 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
Contact us Middle East Middle East Working Capital team Laurent Depolla Partner, E: laurent.depolla@pwc.com Mihir Bhatt Director, E: mihir.bhatt@pwc.com Matthew Wilde Partner, E: matthew.wilde@pwc.com Matti Kasi Senior Manager, E: matti.kasi@pwc.com Erwan Colder Partner, E: erwan.colder@pwc.com Henri Jansson Assistant Manager, E: henri.jansson@pwc.com Global Working Capital team Daniel Windaus Partner E: daniel.windaus@pwc.com Rob Kortman Partner E: rob.kortman@pwc.com Stephen Tebbett Partner E: stephen.tebbett@pwc.com Simon Boehme Director E: simon.t.boehme@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, PricewaterhouseCoopers LLP, its members, employees and agents do 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. 2017 PricewaterhouseCoopers LLP. All rights reserved. In this document, PwC refers to the UK member firm, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details. 170815-113432-DR-OS