CASH FOR CHANGE WORKING CAPITAL TRENDS IN THE AUTOMOTIVE SECTOR - PWC
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www.pwc.de/workingcapital
Cash for Change
Working Capital Trends in the
Automotive Sector
2017/18
Cash for Change February 2018 PwC 2
Contents
Preface Overall OEM Non-OEM How we can help
Performance Performance Performance
04 06 08 10 15
Cash for Change February 2018
PwC 3
Preface
The year 2017 was yet another record year for the global automotive industry,
although total production growth was hampered by weakness in the US and
China. Still, on the back of record sales for the leading manufacturers,
revenues and liquidity flowed satisfactorily on the OEM level, leading to an
overall softening of working capital indicators – while suppliers kept their
controls tight and continued to improve financial efficiency. Most saliently,
DIO performance decreased four days for OEMs, while the non-OEM sector
remained stable.
Felix Kuhnert The automotive industry – especially with their OEMs - is still one of the
Partner leading sectors when it comes to NWC days. However, negotiating power in
Global Automotive payment targets and conditions leads to significant differences in the
Advisory Leader performance of automotive companies. This gets especially visible if you look
at Tier-1 suppliers that are directly serving OEMs. In the downstream sector –
such as wholesale of spare parts – on the other hand, companies regularly
operate with negative working capital due to their smart leveraging of
negotiating power towards their suppliers and customers.
We hope that you will find this report insightful and practical for your daily
operations. We would be happy to provide you with any additional
information and discuss the topic further with you.
Cash for Change February 2018
PwC 4
OEM Non-OEM
Preface
€215bn performance performance
of cash is tied up deteriorated year improved year on year (YoY) by
in the balance on year (YoY) by 11% leading to 2% continuing the trend of the last years
sheets of selected automotive companies
Performance
a marginal deterioration of 2% and resulting in a five year improvement
Overall
over a five year horizon of 8%
Both OEMs & Non-OEM have seen
deterioration in
DIO For both OEM and Non-OEM DPO
performance has deteriorated for Performance has improved by
Performance
DSO OEM by 4 days compared to a stretch in payables
OEM
stable DIO performance
for Non-OEM
Performance
Non-OEM
Finance functions Overall NWC
9 out 15 OEM spend only 24%
have seen improvement in
of time on insight
performance
NWC days since 2012
generating activities and deteriorated
1 Day
How we can
could do more to help the year on year (YoY) by 1 day
help
Business understand the driven by the OEM
cash impact of operational and working capital
commercial decisions performance deterioration
Cash for Change February 2018
PwC 5
Despite positive working capital trends in the last years, recent
deteriorating working capital performance leads to €215 billion in cash
being tied up on the balance sheets
2016 average NWC days per sector Overall WCM Quartile and Median Performance
Engineering and construction 86 NWC 90
days 87 86 87 86 86
Pharma and life sciences 77
80
Chemicals 73
Industrial manufacturing 73
70
Aerospace, defense and security 67
Forest, paper and packaging 65 60
Technology 52 54 54
55 55
53
Metals and mining 51 50
Entertainment and media 44
40
Consumer 41
Transport and logistics 32 30 31
30 29 30 29
Energy and utilities 31
Automotive 26 20
Hospitality and leisure 20
10
Retail 17
Communication 13
-
Healthcare 9 2012 2013 2014 2015 2016
Lower quartile Median Upper quartile
Cash for Change February 2018
PwC 6
OEM companies show a deteriorating working capital performance trend
whereas non-OEM have improved their performance over the last years.
Still, each area has cash tied up, €84bn for OEM and €131bn for non-OEM
Non-OEM There are big
Preface
NWC 90 differences between
88 88 88 87 87 OEM and Non-OEM
days
70 and also within the
two groups.
56 55 56 56 54
50 The discrepancy between
Performance
OEM and non-OEM
Overall
30 31 31 33 31 30 (automotive suppliers) is
10 partly driven by different
business models and
(10) customers served but also
fundamental differences
Performance
2012 2013 2014 2015 2016
in the management focus
OEM
OEM on cash and working
NWC 40 capital.
days 35 34 We have identified a
30 30
28 29 28 28 deterioration in the OEM
Performance
sector of close to 11%
Non-OEM
25
22 22 22
20 18 compared to last year,
15 whereas the non-OEM
10 group improved by 2%
5 over the same time
- 0 0 period.
How we can
-3
(5) -5
-10
help
(10)
2012 2013 2014 2015 2016
Lower quartile Median Upper quartile
Cash for Change February 2018
PwC 7
OEM’s deteriorating working capital performance is mainly driven by
increasing DSO and DIO levels…
OEM – DSO Trend OEM – DIO Trend
Days 35 Days 50
31 48 48 48
30 30 31
30
27 46 46 46
25 25 25 44 44
24 24
22 42 42
20
41 41
40
15 39
14 38
12 38
12 12 11
10 36 36
35
34 34
5 33 33
32
- 30
2012 2013 2014 2015 2016 2012 2013 2014 2015 2016
DSO improved marginally between 2012 and 2015 partially After slight improvements in the past, DIO levels have increased
through improved receivables management in the field of joint in the last year by 9%, leading to a 5-year-high in DIO levels.
ventures and strategic alliances. However this improved level could
This indicates that initial successful DIO reductions were not
not be maintained and DSO has deteriorated by 8% compared to
sustainable and good working capital management practices are hard
last year.
to maintain and require constant effort and focus.
Lower quartile Median Upper quartile
Cash for Change February 2018
PwC 8
… resulting in more than €84bn in cash tied up
OEM – DPO Trend
Preface
Days 70
67
65
62 63 63
60 60
Performance
55
Overall
54
52
50 50
45 46 46
40
Performance
36 37
OEM
35 35 34
33
30
25
Performance
Non-OEM
20
2012 2013 2014 2015 2016
DPO has increased by 8% compared to last year’s performance.
Whilst the median performance is fairly stable, the upper and lower
quartile’s performance increased last year.
How we can
In these areas continued spend consolidation and the use of
help
financial instruments like supply chain finance have
contributed to higher performance levels.
Cash for Change February 2018
PwC 9
There is a significant gap in DSO between the different categories of Non-
OEM companies, with body and interior suppliers achieving the best DSO
levels…
Observations/drivers for working capital performance:
Non-OEM DSO performance 2012 - 16
Days 66
64 64
Automotive suppliers’ working capital
performance depends on product footprint, 62
regional set up and the level of collaboration 61 61
Suppliers with OEM. 60 60
59
58
56
54
Inventory is the area with the largest spread between 52
the supplier segments caused by a different set-up of
the supply chain, varying footprints as well as the 50
dependency of the OEM. Inventory 2012 2013 2014 2015 2016
Powertrain Electrical components
Body & interior Total non-OEM
Gap between body and interior and other suppliers. There is
a discrepancy between body and interior and other suppliers for all
working capital areas with the largest one on the receivables side, with
Many suppliers have reported actions in the area a delta of 8 days compared with all non-OEM companies.
of working capital management, especially in the The general DSO performance deteriorated to 64 days. In
area of billing and cash collection, supplier line with the positive DPO development at OEM level the non-OEM
Takeaways payment terms, and supply chain efficiency. DSO levels are deteriorating – the fairly constant performance of the
past four years could not be maintained.
Cash for Change February 2018
PwC 10… whereas the Non-OEM DIO and DPO trends show a wider range of
performances resulting in more than €131bn being tied up
Non-OEM DIO performance 2012 - 16 Non-OEM DPO performance 2012 - 16
Preface
Days 60 Days 60
55
55 55
Performance
50
Overall
51
45 50 50
42 49
42 41 41
40 41 47
Performance
45
35
OEM
30 40
2012 2013 2014 2015 2016 2012 2013 2014 2015 2016
Performance
Powertrain Electrical components Powertrain Electrical components
Non-OEM
Body & interior Total non-OEM Body & interior Total non-OEM
Converging performance Top non-OEM are DPO leaders
Besides a deterioration for electrical components the overall Non- Focus on procurement and working capital management has
OEM group shows a constant DIO performance around 41 days. benefitted all segments over the past five years.
How we can
The marginally positive reduction of the past couple of years could As a result, 2016 levels show a strong increase by 18% compared to
be maintained. Key drivers in this area are more upstream and performance levels of 2012.
help
downstream collaboration in demand forecasting, better process
Key drivers for the recent improvements are spend consolidation,
coordination, and global sourcing optimisation.
supply chain streamlining, and global sourcing programs.
Cash for Change February 2018
PwC 11There are significant differences between – and even within – different
automotive supplier segments
Electrical components Body and interior
Company NWC Company NWC Company NWC Company NWC
Korea Autoglass 68 Autoliv 56 Faurecia (16) Aisin Seiki 5
Xinyi Glass 46 Hyundai Sungwoo 40 Johnson Controls 68 F-tech Inc. 56
Asahi India Glass 88 Takata 64 Lear 22 Magna 35
Company NWC Audio and Saint-Gobain 47 Toyota Gosei 53 Magna 35 Plastic Omnion (2)
Continental 44
Delphi 35 telematics Webasto 56 Kongsberg Autom. 46 Toyota Boshoku 14 Tower 132
VOXX 98
ASTI 127
Body glass Passenger Interior Body and structural
Visteon 23 restraints
Fuel Company NWC
Continental 44
system Delphi 35
Company NWC Electronics Denso 53
Continental 44
Delphi 35 and electrical Robert Bosch 56
TI Automotive 73
Denso 53
Sumitomo Elec. 93
Exhaust Company NWC
Calsonic Kansei 24
Eberspacher 33
Faurecia (16)
Company NWC Climate Futaba 22
Sogefi 14
Calsonic Kansei 24 control and Tenneco 22
Denso 53 engine
Valeo (1) Suspension Company NWC
Dometic 78
cooling Benteler 19
Hyundai Mobis 39
KYB Corp 72
Axles, drives- Tower
ZF Friedrichshafen
132
28
hafts and
Engine Transmission Braking components Steering Wheels and tires
Company NWC Company NWC Company NWC Company NWC Company NWC Company NWC
BorgWarner 19 Aisin Seiki 5 Akebono Brake 36 American Axle 37 SAIC 23 Bridgestone 71
Continental 44 American Axle 37 Continental 44 Dana 34 Nexteer Autom. 23 Continental 44
Delphi 35 Magna 35 Hyundai Mobis 39 GKN 48 NSK 70 Goodyear 44
Denso 53 Schaeffler 68 Cie Automotive (8) Magna 35 Takata 64 Michelin 90
Mahle 58 Valeo (1) Cooper Standard 14 ZF Friedrichshafen 28 Robert Bosch 56 Pirelli 14
Powertrain
Cash for Change February 2018
PwC 12Size generally affects Non-OEM’s average NWC days position but regional
influence has a bigger impact
Evolution of Non-OEM suppliers’ NWC days 2012 - 16
Preface
Americas EMEA Asia Pacific
-4% -4% -11%
62
Performance
50 47 56
Overall
Regional average 41 39
Large companies
Performance
50 48 63 45
> €5 billion 37 36
OEM
2016 revenues
Medium-sized companies 58 61
42 39 45 44
Performance
€1-5 billion
Non-OEM
2016 revenues
71 69 69 69
Small-sized companies
How we can
48 42
< €1 billion
help
2016 revenues
2012 2016 2012 2016 2012 2016
Cash for Change February 2018
PwC 13The role of the finance teams in working capital management
The finance function traditionally plays objectives and incentives. The reason
Only 24%
of a central role in the coordination of that organisations turn to finance to
working capital management. In fact, play this central role is that often it’s the
finance time is businesses often place an overreliance finance team who are responsible for
spent on insight-generating on finance to solve working capital sourcing, validating and analysing the
activities problems when many of the underlying disparate data sets and inputs to this
drivers are operational rather than complex process.
24% financial.
Working capital management is a broad
The role of the new breed of finance
business partner needs to focus on
topic with commercial and supply chain business outcomes. Working capital
touchpoints where the value of cash is improvement is one area where positive
not always front of mind. Finance has a business outcomes can really benefit
How leading finance functions are big role to play in helping the business the organisation and the finance team
pulling ahead: to make good decisions in the midst of can help cross functional stakeholders
often competing financial to understand the cash impact of
1 Building a clear role for business partners with
the right skills to impact business decisions.
commercial and operational decisions.
Stepping up:
Investing in emerging technologies (e.g. data
2 analytics, tailored collections pathways and
robotic process automation).
How finance functions are transforming to drive business results.
In our 2017 Finance benchmarking study we saw that less than a quarter of finance
time is spent on delivering business insight. In order to help different functions to
3 Driving behaviour and cultural change across
the organisation.
manage complex trade offs and identify improvement opportunities less time needs to
be spent on transactional work, such as sourcing and reconciling data and more on
these value adding tasks, including analysing data in order to generate actionable
business insights.
Driving large scale business transformation
4 based upon sound financial analysis and
To overcome this challenge our clients are investing in emerging technologies to
increase process efficiency, upskilling business partners and driving behavioural
measurable benefits. change across the business.
Brian Furness, Finance Partner, PwC UK
Cash for Change February 2018
PwC 14How we can support you
Examples of areas where PwC could help you to release
cash from working capital:
• Tailored, proactive • Systematic dispute
Preface
Accounts receivable
collections resolution
• Credit risk policies • Dispute root cause
• Aligned and optimised elimination
customer terms • Alternative B2B Collection
Implemen-
approaches
Performance
Working tation • Billing timeliness & quality
Overall
capital im- • Contract & milestone • New players with pre-
provement Design management payment terms
approach
Diagnostic • Lean & agile supply service level
chain strategies considerations
Quick scan
Performance
• Global coordination • Inventory parameters &
Inventory
OEM
• Forecasting techniques controls defining target
• Production planning stock
• Inventory tracking • Inventory build up due to
We help our clients to deliver the following outcomes: new technologies (e.g.
• Balancing cost, cash and
Batteries)
Performance
Non-OEM
• Identification and realisation • Rapid cash conservation in
of cash and cost benefits crisis situations. • Consolidated spending implementation
across the end to end value Accounts payable • Increased control with • Payment methods
• “Cash culture” and upskilled
chain. organisation through our centre-led procurement • Eradicate early payments
• Optimised operational working capital academy. • Avoid leakage with • Supply chain finance
How we can
processes that underpin the • Roll-out trade and supply purchasing channels • Payment methods and
help
working capital cycle. chain financing solutions. • Payment terms frequency
• Digital working capital • Supply chain finance
solution and data analytics. benefits assessment &
Cash for Change February 2018
PwC 15Our approach to sustainable working capital
Change management Stakeholder Case study:
Establish a more cash-focused management Global Supply Chain Finance roll-out and implementation for Tier 1
culture that is able to sustain Ensure that key stake- Automotive Supplier
the higher levels of perfor- holders remain engaged The key issue
mance and drive continuous during the project. The customer is a global automotive supplier with 11.8 billion of sales and 81,800
improvement. employees. With 136 production sites in 29 countries all over the world he was
looking for an advisor to implement a global SCF-program. To ensure a successful
global roll-out individual regional challenges and restrictions had to be considered
and solved.
How we helped
Following the selection of banking and the design of Supply Chain Finance pro-
Optimised cesses, the client wanted to start the roll out of Supply Chain Finance including:
Working • Trained 200+ of client staff across 4 continents on the concept of Supply
capital Chain Finance, next steps and roll out
• Linking between client and bank to ensure robust set-up in all countries,
KYC and legal requirements fulfilled
• Locally setting up the interface between client (SAP) and bank (SCF
Portal) and joint testing of functionality
• Developed a validated Purchasing Framework on local and group
Benefits realisation Cash management level, recommended target term
Ensure that cash generation Ensure effective • Recommended and developed Global Payment Terms for relevant
objectives are achieved and utilisation and suppliers, leveraging economies of scale and ensuring standardised approach
maintained. forecasting of cash. on supplier level within local legal requirements
We supplement our working capital and cash
management methodologies with core consulting The result:
approaches to make sure that improvements are Successful implementation of the global SCF-program covering 8000
tangible and sustainable. suppliers, 8 billion spend For 58 legal entities in 17 countries
Cash for Change February 2018
PwC 16Working capital team and global network Authors of the study Rob Kortman Stephan Dellermann Sebastian Leidig Partner Senior Manager Manager Tel. +44 780 385-9001 Mobil +49 151 26818204 Mobil +49 175 2271992 rob.kortman@pwc.com stephan.dellermann@pwc.com sebastian.leidig@pwc.com Our global Working Capital network Australia Austria Belgium CEE Denmark Jonas Schöfer Manfred Kvasnicka Koen Cobbaert Petr Smutny Søren Lykke Tel. +61 2 8266-4782 Tel. +43 15 0188-2937 Tel. +32 4 7998-6176 Tel. +42 25 115-1215 Tel. +45 51 350-210 jonas.schofer@au.pwc.com manfred.kvasnicka@at.pwc.com koen.cobbaert@pwc.com petr.smutny@cz.pwc.com soren.lykke@dk.pwc.com France Germany Hong Kong Italy Malaysia François Guilbaud Simon Boehme Michael P Gildea Marco Ghiringhelli Ganesh Gunaratnam Tel. +33 1 5657-8537 Tel. +49 16 0680-8355 Tel. +852 2289-1816 Tel. +39 02 6672-0345 Tel. +603 2173-0888 francois.guilbaud@pwc.com simon.boehme@pwc.com michael.p.gildea@hk.pwc.com marco.ghiringhelli@it.pwc.com ganesh.gunaratnam@my.pwc.com Middle East Poland Russia Singapore Spain Mihir Bhatt Felker Krzysztof Konstantin Supatov Caroline Clavel Enrique Bujidos Tel. +971 4304-3641 Tel. +48 51 9504-153 Tel. +7 49 5967-6106 Tel. +65 6236-3047 Tel. +34 9 1568-4356 mihir.bhatt@ae.pwc.com krzysztof.felker@pwc.com konstantin.suplatov@ru.pwc.com caroline.yl.clavel@sg.pwc.com enrique.buji@es.pwc.com Sweden Switzerland The Netherlands Turkey USA Johan Forsberg Reto Brunner Danny Siemes Tankut Ikizler Paul Gaynor Tel. +46 7 2584-9574 Tel. +41 5 8792-1419 Tel. +31 8 8792-4264 Tel. +90 21 2326-6527 Tel. +1 92 5699-5698 johan.forsberg@pwc.com reto.brunner@ch.pwc.com danny.siemes@nl.pwc.com tankut.ikizler@pwc.com paul.m.gaynor@us.pwc.com United Kingdom United Kingdom United Kingdom Rob Kortman Stephen Tebbett Daniel Windaus Tel. +44 78 0385-9001 Tel. +44 77 1778-2240 Tel. +44 77 2563-3420 rob.kortman@pwc.com stephen.tebbett@pwc.com daniel.windaus@pwc.com Cash for Change February 2018 PwC 17
Basis of calculation and methodology
Metric Definition Basis of calculation Methodology
NWC % NWC % measures working capital requirements relative to (Accounts receivable + inventories Automotive data is based
(net working capital %) the size of the company. – accounts payable)/sales on the publicly available
data (CapitalIQ) of 611
NWC days Indication of the total days to complete the full cash (Accounts receivable + inventories
companies in the
(net working capital days) conversion cycle. – accounts payable)/sales x 365
automotive sector,
DSO DSO is a measure of the average number of days that a Accounts receivable/sales x 365 according to Capital IQ
(days sales outstanding) company takes to collect cash after the sale of goods or after sector segmentation.
services have been delivered.
The division in non-
DIO DIO gives an idea of how long it takes for a company to Inventories/sales x 365 OEM is based on Capital
(days inventories on-hand) convert its inventory into sales. Generally, the lower (shorter) IQ Primary Industry
the DIO, the better. classification, whilst the
segment categorisation is
DPO DPO is an indicator of how long a company takes to pay its trade Accounts payable/sales x 365
based on Capital IQ
(days payables outstanding) creditors.
primary SIC codes (data
available for 42% of
sample). Division in
Term Definition regions is based on
Capital IQ Primary
Original equipment manufacturer. Data includes the 15 most relevant OEM based on 2016
OEM Country.
revenue and available data; financial services have been excluded.
OEM data is derived
Range of companies manufacturing automotive parts and components based on Capital IQ
Non-OEM from the annual
primary industry. Data includes 596 suppliers based on 2016 revenue and available data.
accounts of a selection of
Selection of non-OEM companies based on Primary SIC code: producing components that the top automobile
Powertrain
generate power and deliver it to the road surface (engines, transmissions, wheels, etc) manufacturers in terms
of revenue. For OEM
Selection of non-OEM companies based on Primary SIC code: producing components related to
Electrical components data the financial
transformers, meters, electrical coils, etc.
services arm has been
Selection of non-OEM companies based on Primary SIC code: producing components related to excluded.
Body and interior
car bodies, plate work, seats, etc.
Cash for Change February 2018
PwC 18Cash for Change February 2018 PwC 19
© 2018 PricewaterhouseCoopers GmbH Wirtschaftsprüfungsgesellschaft. All rights reserved. In this document, “PwC” refers to PricewaterhouseCoopers GmbH Wirtschaftsprüfungsgesellschaft, which is a member firm of PricewaterhouseCoopers International Limited (PwCIL). Each member firm of PwCIL is a separate and independent legal entity.
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