W ki it l
"C h f
"
Working capital – "Cash for recovery"
Study results – Short version
Contents
Summary – Given the current credit squeeze, the risk of insolvency has increased – In Europe, cash potential increased
against previous year about 32% (Q1)
A. Introduction – Working capital is becoming increasingly important as a source of finance, especially in the
current economic situation
B. Study design – Tried and tested analysis with 216 companies from all key industry sectorsy g y p y y
C. Overall result – Total cash potential of EUR 353 bn identified, potential up since 2004,
massive increase in Q1 2009
D. Identification of individual potential – Quick check approach and Cash Navigator help identify the
cash potential at company level
E Contact Yo r contacts at Roland Berger Strateg Cons ltants E Contact – Your contacts at Roland Berger Strategy Consultants
Summary –
Given the current credit squeeze, the risk of
i
l
h i
d I E
h t ti l
insolvency has increased – In Europe, cash potential
increased against previous year about 32% (Q1)
Given the current credit squeeze, the risk of insolvency has
increased – Idle cash potential of EUR 353 bn in working capital
> In the current overall economic situation there is an increased risk of insolvency
Summary of findings (1/2)
> In the current overall economic situation, there is an increased risk of insolvency – increased cash requirements but reduced cash supply and high financing costs
> Out of the possible financing sources, only a few are suitable – one of the main levers is to free up cash potential in working capital
> The study covers 216 European companies – EUR 3,700 bn in sales, EUR 422 bn in EBIT or 30% of the GDP of the EU 25
> The potential of the 216 companies considered totals EUR 353 bn in Q1 2009 – another enormous increase of 32% compared to 2008
> Relative to tied-up working capital energy utilities and engineered products show the > Relative to tied-up working capital, energy utilities and engineered products show the
greatest scope for releasing cash potential
> All three working capital components (customer receivables, supplier payables and
i t i ) ff h t ti l
4
inventories) offer cash potential
Given the current credit squeeze, the risk of insolvency has
increased – Idle cash potential of EUR 353 bn in working capital
> Overall cash potential has increased considerably since 2004 In Q1 2009 there is
Summary of findings (2/2)
> Overall cash potential has increased considerably since 2004 – In Q1 2009 there is another large increase in all components
> Net working capital days are highest in aerospace and lowest in telecommunications > Mining and automotive OEMs are ahead in receivables management –
telecommunications and construction are ahead in supplier payables and inventory
> Quick check approach and Cash Navigator help identify the cash potential at company Quick check approach and Cash Navigator help identify the cash potential at company
level
> To ensure the sustainability of working capital projects, a range of success factors should be taken into account
be taken into account
5 Source: Roland Berger
A. Introduction –
Working capital is becoming increasingly
i
t t
f fi
i ll i th
t
important as a source of finance, especially in the current
economic situation
Currently an increased insolvency risk – Increased cash
demand but reduced cash supply with high financing costs
Cash situation in current economic crisis
INCREASED CASH DEMAND
> Customers want longer payment terms
> Suppliers want shorter payment terms (in some
Low cash and high credit costs result in Suppliers want shorter payment terms (in some
cases even advance payment) > Increased levels of write-offs > Attractive investment opportunities
liquidity constraints and greater risk of insolvency
> Attractive investment opportunities
REDUCED CASH SUPPLY
> Reduced revenue and cash inflowReduced revenue and cash inflow insolvency > Restrictive credit offering by banks
– Reduced credit volumes – Increased credit cost
7
> Access to equity is more difficult
B.
Study design – Tried and tested analysis of 216
i f
ll k i d t
t
companies from all key industry sectors
This study follows our well-established previous studies
"Cash for Growth" and "Working Capital Excellence"
Study history
2003/04 2005 2006
2003/04 2005 2006
SURVEY STUDY
Working capital excellence –
Part II: Managing inventory
Roland Berger Strategy Consultants
Working Capital Excellence –
Part I: Managing accounts payable and receivable
Roland Berger Strategy Consultants
Cash for Growth –
Unlocking hidden resources for growth > Pan-European benchmarking t d h t ti l > Benchmarking of accounts i bl d bl > Benchmarking of inventory t STR-97004-460-02-02-E-c.ppt 1 Stuttgart, March 2006 STR-97004-460-02-02-E-c.ppt 1 Stuttgart, April 2005 Cash4Growth-Teaser_E 1 May 2004
study on cash potential
> Analysis of cash potentials and Working Capital performance per industry
receivables and payables > Optimization approaches and
levers to manage accounts receivables and payables
management
> Optimization approaches and levers for best-in-class inventory management
9
industry receivables and payables management
The study includes 216 European companies – Together, they had
EBIT of EUR 422 bn in 2008 and covered 30% of EU 25 GDP
Study scope
The 216 European
companies anal ed in
… EUR 3,700 bn in revenue
companies analyzed in
2008 accounted
f
… EUR 422 bn in EBIT
for …
… 30% of EU 25 GDP
Results also extrapolated to include Q1 2009
10
Results also extrapolated to include Q1 2009
C.
Overall result – Total cash potential of EUR 353 bn
id tifi d t ti l i
2004 i
i
i
identified, potential up since 2004, massive increase in
Q1 2009
The cash potential of the 216 companies analyzed was
EUR 353 bn in Q1 2009 – Increase of more than 30%
Cash potential 2004-2009/Q1 [EUR bn]
+32% 80 353 +38% +32% 100 130 37 48 51 59 58 80 193 229 246 267 236 81 93 101 98 100 37 75 89 85 89 109 143 2004 2005 2009 (Q1) Inventories 2006 2007 2008 12 Customer receivables Supplier payables
D.
Identification of individual potential – Quick check
h d C h N i t h l id tif th
approach and Cash Navigator help identify the
cash potential at company level
A comprehensive toolkit for working capital management has
been developed by Roland Berger and is ready to use
General tools Category-specific tools
Working capital toolset
Cash Navigator "Lever Bible" Toolbox EVA/Cash
Calculator Customer Risk Analysis Value Stream Mapping
C l l t i t f D t i t
STR-97004-460-02-02-D-c.ppt1
Working Capital Quick Check –
Cash Navigator
Roland Berger Strategy Consultants
Q i k l l ti f
Working Capital Reduction Lever Bible
C h i t f 110 > Calculate impact of A l h l supplier
negotiations on payables related to cash- and price
> Determine customer segment-specific risk for receivables > Basis for
receiv-ables strategy > Quick calculation of
companies' working capital potential
> Based on readily available data (can be detailed) and
> Comprehensive set of 110 improvement levers – 50 inventory levers – 35 receivables levers 25 payables levers > Analyze whole value chain > Identify non-value adding process steps effects gy ( ) comprehensive working capital benchmarking database
> "Fair benchmarking" based on external benchmarks and
– 25 payables levers > For each lever there is a
detailed description, evaluation of impact and questions for assessing its
p
> Determine optimal level of stock
14
on external benchmarks and
specific calibration factors applicability
E. Contact – Your contacts at Roland Berger Strategy
C
lt t
Consultants
Your working capital experts –
Contact us for further information
Authors of the study
R l d S h i t k Fl i K i
Löffelstrasse 46 Mies van der Rohe Strasse 6
Roland Schwientek
Partner Florian KaiserSenior Consultant
Löffelstrasse 46 70597 Stuttgart Tel.: +49 (711) 3275 7318 [email protected] Mies-van-der-Rohe-Strasse 6 80807 München Tel.: +49 (711) 3275 7350 [email protected] 16
