Poor working capital management costs industrial manufacturing industry €141 billion

• Cash opportunity from improving working capital of up to €11.7bn available to UK industrial manufacturers
• 11% jump in global revenues but report warns future growth requires significant cash reserves
• European businesses are struggling to improve working capital performance

Improving working capital could create a cash opportunity of up to €11.7bn for UK industrial manufacturers, compared to €34.4bn across Europe, according to new research from PwC.

Against a backdrop of global economic and geopolitical headwinds, the industrial manufacturing sector grew by an average of 10.7% in 2015. However, as the Bridging the Gap: 2015 Annual Global Working Capital Survey reveals, this upsurge in revenue performance didn’t translate into much needed WCM improvements.

It estimates the global cash boost that could be generated by better WCM practices to be in the region of €141 billion.

Cara Haffey, PwC UK industrial manufacturing leader, said:

“The UK manufacturing sector is facing a technology renaissance that has the potential to transform the look, systems and processes of organisations. But if it they are to grab this opportunity – which could result in significant productivity gains, enhance their ability to compete against rivals and potentially gain market share – they need cash…and lots of it.

“While there is no silver bullet, what this report does show is that if companies focus on improving their working capital, they can not only stop funds being trapped in the production cycle but considerably boost future cash flow and release crucial resources to reinvest and grow.”

A look at the global and sub sector picture

 The study reveals that performance trends in working capital have not only plateaued but are close to their five year peak. In particular, Europe and Americas have struggled to make any gains in their efficiency levels. The heavy electrical equipment sub sector remains the most capital intensive area, with a working capital ratio that is a third higher than any other.

Nevertheless, the report estimates that industrial manufacturers in Asia could benefit from as much as €70.3bn –predominately by improving WCM in machinery (€25bn) and industrial conglomerates (€22bn) sub sectors.

Across Europe, the figure falls to €34.4bn, with the machinery sub-sector alone capable of releasing a cash boost of over €19bn. Meanwhile firms in USA and Canada could free up to €29bn, with industrial conglomerates and machinery accounting for almost two-thirds of this potential cash reservoir.

Next steps

According to PwC’s analysts, performers are generally adept at managing four areas of their business effectively: commercial terms, process optimisation, process compliance and instilling a cash culture.

As Daniel Windaus, working capital partner at PwC and co-author of Bridging the Gap explains, success comes to those businesses with an embedded cash culture and clear key performance indicators.

“Working capital presents a huge opportunity for companies to release cash from their balance sheets and operate more effectively, without having to access additional funding sources to finance their growth.

“The key is to delve into the detail and small day-to-day operational activities, and while this may sound like common sense, in many cases it is simply not being done or efforts are barely scratching the surface. This can be put down to several reasons: firms don’t have the bandwidth to tackle working capital, they perhaps lack the resources, or simply don’t have the skills or technical expertise on hand.

“Those organisations who constantly adapt in the face of adversity, finding opportunities to innovate and achieve significant reductions in working capital, will fare better in the long term.”

Ends.

Notes for editors

1. The report Bridging the Gap: 2015 Annual Global Working Capital Survey of Industrial Manufacturing, can be accessed via https://www.pwc.com/gx/en/services/advisory/publications/working-capital-manufacturing.html
2. The report analyses the performance of 1403 global firms, with revenues totalling €2.97 trillion.
3. UK figure is based on sample of global survey respondents and reflects performance analysis against global peers operating in the same industry.

Media contact:

Lynn Hunter, UK media relations

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