Working Capital ReportSoutheast Asia 2019
Working Capital Report | Southeast Asia 2019
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Understanding Working CapitalCash is the life blood of business. Cash tied up in the working capital cycle (which comprises receivables, inventory and payables) can be a drag on business and lead to liquidity pressures. Businesses in Southeast Asia (“SEA”) are under-performing their international peers on working capital management; reducing their global competitiveness. Effective working capital management can release cash which can be used for operations, expansion, capital expenditure, deleveraging and dividends.
The Working Capital Cycle
ReceivablesOrder-to-cash
The process of contracting with customers through to selling
goods and eventually collecting cash for the goods delivered
InventoryForecast-to-fulfil
The process of converting raw materials into finished goods, including the ownership of the
goods until they have been sold
PayablesProcure-to-pay
The end-to-end process, from contracting with suppliers to
receiving products/services and ultimately paying
Manufacturing example
Collect cash
Sell outputs
Finished outputs
Receive inputs
Order inputs
Customer terms (+ delay to pay)
Inventory holding period
Productiontime
Supplier terms (+ delay to pay)
Order leadtime
Days Inventory
Days Payables
Days Sales
Working Capital Funding Requirement / Cash Lock Up
Working Capital Report | Southeast Asia 2019
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SEA Working Capital Performance Listed public companies in Southeast Asia have a relatively high working capital investment when compared to the global average; 55 Days Working Capital (“DWC”) in 2019. Singaporean companies were able to tighten up their working capital investment in 2019 unlocking USD5.6b through a 6 day reduction in their DWC. However Indonesian companies required an additional USD4.0b in working capital funding due to an 8 day increase in DWC.
Working Capital in Southeast Asia
Vietnam97 DWC +4 days
Thailand86 DWC +3 days
Indonesia90 DWC +8 days
Philippines49 DWC -1 day
Malaysia113 DWC -3 days
Singapore84 DWC -6 days
Globalaverage55 DWC
DWC - Days Working Capital= (Accounts Receivable + Inventories - Accounts Payable) / Revenue x 365 days
Data Sample Quick Stats
6 Countries USD214b NWC
24 Industries Source: Cap IQ
2,260 Public Companies July 18 to June 19
Working Capital Report | Southeast Asia 2019
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SEA Industry PerformanceMining companies achieved a 19 day reduction in DWC, releasing USD1.7b in cash, driven by a 7 day reduction in Days Sales Outstanding (“DSO”) and a 15 day increase in Days Payable Outstanding (“DPO”). Agricultural companies saw a 27 day increase in DWC, requiring USD2.3b in additional funding, driven by increasing DSO and Days Inventory Outstanding (“DIO”).
Change in Days Working Capital, CQ2 2018-CQ2 2019
-19
-12
-11
-8
-6
-6
-2
-2
-1
0
1
2
3
3
3
3
3
4
5
7
8
17
22
27
A de
crea
se in
DW
C in
dica
tes
an
impr
ovem
ent i
n w
orki
ng c
apita
l pe
rfor
man
ce, i
.e. i
ncre
asin
g ca
sh r
elea
se
An in
crea
se in
DW
C in
dica
tes
a de
terio
ratio
n in
wor
king
cap
ital
perf
orm
ance
, i.e
. inc
reas
ing
cash
lock
up
Avg:2Source: Capital IQ, Deloitte analysis
NWC
Mining $3.3b
Furniture & Wood $1.3b
Oil & Gas $14.2b
Industrial Machinery $3.6b
Construction Materials $5.6b
Industrial Chemicals $10.5b
Public Utilities $11.2b
Steel & Metalworks $9.2b
Retail $5.0b
Mechanical Engineering $16.2b
Transportation $2.1b
Consumer Goods $1.9b
Construction $17.0b
Computers & Electronics $7.7b
Palm Oil $13.8b
Services $4.7b
FMCG $22.8b
Paper & Printing $3.4b
Telecommunications $3.8b
Health $2.9b
Clothing & Textiles $2.3b
Other $41.8b
Hospitality $2.6b
Agriculture $7.2b
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SEA Industry BenchmarkingWe have analysed the working capital performance of over 2 thousand public companies around Southeast Asia.
You can use these benchmarks to assess the working capital efficiency of your own business or portfolio company using the Working Capital Health Check on the following page.
Industry Benchmarks
400
200
0400
200
0
400
200
0
DPO
DIO
DSO
74
57
40
118
81
54
246
169
10387
66
42
95
62
34
101
72
47
67
44
27
102
50
29
78
56
34
47
27
12
130
92
67
131
79
53
62
35
23
135
78
27
38
25
16
135
65
38
101
75
49
92
65
42
31
14
6
101
68
42
136
90
49
168
93
53
80
53
28
74
39
23
107
77
51
120
73
40
158
86
59
159
114
70
102
72
46
143
90
55
136
50
13
62
16
7
102
67
48
161
88
42
82
42
24
65
48
29
109
73
46
33
13
4
139
57
25
40
8
0
159
94
6415
7
0
18
7
1
55
19
5
212
122
69
142
44
7
177
80
45
149
57
27
62
28
6
66
39
21
89
53
34
85
59
39
87
43
21
65
39
24
82
51
23
78
38
24
111
48
17
67
39
22
117
59
42
125
69
31
102
48
23
95
61
17
55
25
11
75
44
27
109
52
26
73
40
22
80
35
17
86
49
30
160
93
50
125
58
23
158
66
25
130
59
36
Agric
ultu
re
Clot
hing
& T
extil
es
Com
pute
rs &
Ele
ctro
nics
Cons
truc
tion
Cons
truc
tion
Mat
eria
ls
Cons
umer
Goo
ds
FMCG
Furn
iture
& W
ood
Hea
lth
Hos
pita
lity
Indu
stria
l Che
mic
als
Indu
stria
l Mac
hine
ry
Mec
hani
cal E
ngin
eerin
g
Min
ing
Oil
& G
as
Oth
er
Palm
Oil
Pape
r & P
rintin
g
Publ
ic U
tiliti
es
Reta
il
Serv
ices
Stee
l & M
etal
wor
ks
Tele
com
mun
icat
ions
Tran
spor
tatio
n an
d lo
gist
ics
Source: Capital IQ, Deloitte analysis
Median Upper quartile Lower quartile
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Working Capital Health Check Calculate your company’s working capital metrics using the formula below and compare the performance with the benchmarks for your industry on the previous page. How much cash could you unlock with the right working capital management strategy? We look at some of the levers to optimise working capital (and size some of the industry opportunities) on the following page.
Working Capital Health Check
Understanding Working Capital Lock-up Taking Debtors as an example, assume: (a) your Accounts Receivable total USD20m; and (b) your Days Sales Outstanding is 150 days (i.e. it takes 5 months to collect debtors).
The OpportunityAccelerating collections by just 1 month (20% reduction in collection time) would release ~USD4m in cash for your business. What would you do with that money?
The CostAssuming the business has a cost of capital of 7%; that 1 month additional lock-up in receivables is costing the business an additional USD280k p.a.
Notes 1. Your Accounts Receivable management is more efficient if your Company DSO is lower than the Industry Benchmark. 2. Your Inventory management is more efficient if your Company DIO is lower than the Industry Benchmark. 3. Your Accounts Payable Management is less efficient if your Company DPO is lower than the Industry Benchmark.
Working Capital Formula
My Company Industry Benchmark
NotesCalculate your Company's Working Capital Days
Insert industy benchmarkfrom Chart above
Days Sales Outstanding [insert formula result for
your company][insert from industry
benchmark from page 5]1
DSO = Accounts Receivable
––––––––––––––––––––––––Revenue
x 365
Days Inventory Outstanding [insert formula result for
your company][insert from industry
benchmark from page 5]2
DIO = Inventory
––––––––––––––––––––––––COGS
x 365
Days Payables Outstanding [insert formula result for
your company][insert from industry
benchmark from page 5]3
DPO = Accounts Payable
––––––––––––––––––––––––COGS
x 365
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Illustrative Levers + Opportunities There is a significant opportunity to increase the global competitiveness of Southeast Asian companies through working capital optimisation. Here we demonstrate how tactical, operational and strategic adjustments to a company’s debtor collections, inventory and payables management can yield material cash results …fast! We can help your business to understand the potential for cash release and help develop and implement plans to realise results.
Survey Result(Southeast Asia)
Illustrative Cash Release Levers(Not exhaustive)
Opportunity(Potential Release)
Tactical Operational Strategic
Debtors
ConstructionDSO: 169 days highest across all industries
Prioritised collections drive A 7-day (4%) decrease in DSO would release USD802m
Early payment discounts
Invoice financing
Inventory
Textiles DIO: 122 days highest across all industries
Re-pricing to accelerate turnoverA 10-day (8%) decrease in DIO would release USD142m
Reduce minimum stock quantity
Rationalise (less profitable) SKUs
Payables
AgricultureDPO: 28 days one of the lowest across all industries
Request and vouch original invoicesA 3-day (11%) increase in DPO would release USD124m
Renegotiate terms for early payment discounts
Rationalise supplier base and seek volume discounts
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Deloitte Value Creation Services Working Capital Optimisation is just one of the tools utilised by our expert Value Creation Services team who combine M&A and Restructuring skillsets with Private Equity techniques to rapidly drive up earnings and cash generation.
Value Creation Scenarios
M&A event driven: enhanced VALUE CREATION
1
transformation: step VALUE CREATION
2
turnaround: VALUE re-CREATION
3
1 Mergers & Acquisitions Enhancing M&A opportunities to create value through:
• Due Diligence (com, fin, tech, ops)
• 100 Day Plan
• Integration and Separation
2 Transformation Optimising existing businesses to drive up profits through:
• Performance Improvement
• SG&A Cost Reduction
• Working Capital Optimisation
• Strategic Sourcing
• Asset Efficiency
3 Turnaround Restructuring businesses in special situations:
• Cash and Liquidity Improvement
• Restructuring Strategy
• Implementation Support (PMO)
• Chief Restructuring Officer / Advisor
• Managed Exit; fix, sell, close …for underperforming subs / divisions
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Basis of preparation Source DataThe financial data has been sourced from the S&P Capital IQ database of the available financial information of entities with primary listings on the Singapore, Malaysia, Indonesia, Thailand, Philippines, Hanoi and Ho Chi Minh stock exchanges for the calendar quarters between July 2017 and June 2019.
Industry ClassificationsWe have classified the companies in the dataset into 24 industries based on their Standard Industrial Classification (SIC) codes and corresponding major industry groups.
For the purposes of our analysis, we have excluded companies in the Real Estate, Finance and Insurance industries.
Limitations This communication contains general information only. Before making any decision or taking any action that may affect your finances or your business, you should consult a qualified professional adviser. We have not audited or sought to verify the Source Data and make no representations as to accuracy or completeness.
Basis of calculations
Days Inventory Outstanding (“DIO”)
DIO = Inventory––––––––––––––––––––––––––––
Cost of Sales
x 365
Days Payables Outstanding (“DPO”)
DPO = Accounts Payable ("AP")––––––––––––––––––––––––––––
Cost of Sales
x 365
Days Sales Outstanding (“DSO”)
DSO = Accounts Receivable ("AR")–––––––––––––––––––––––––––––
Revenue
x 365
Days Working Capital (“DWC”)
DWC = Inventory+AR−AP––––––––––––––––––––––––
Revenue
x 365
Net Working Capital (“NWC”)
NWC = Inventory + AR − AP
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Key contactsReport AuthorMatt Becker Partner, Financial Advisory Singapore T: +65 8332 1977E: [email protected]
Edy WirawanFinancial Advisory LeaderIndonesia T: +62 21 5081 9200E: [email protected]
Fang Li Wei Financial Advisory LeaderMalaysia T: +60 3 7610 8865E: [email protected]
Aye ChoFinancial Advisory Services LeaderMyanmar T: +951 230 7365E: [email protected]
Soo Earn Keoy Regional Managing Partner Southeast AsiaT: +65 6216 3238E: [email protected]
Thavee ThaveesangsakulthaiFinancial Advisory LeaderThailand T: +66 (0) 20340000 E: [email protected]
Phong LeFinancial Advisory LeaderVietnam T: +84 28 3521 4080E: [email protected]
Diane Yap Financial Advisory Philippines T: +63 2 581 9053E: [email protected]
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Notes
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