- Almost half (49.5%) of the companies in our study ended 2020 with a year-over-year improvement in working capital performance measured in NWC days
- The best performers in working capital in our study were able to achieve twice the return on capital employed (RoCE) than those who performed poorly in working capital
- Outstanding working capital performance, defined as companies that have improved their working capital for three consecutive years, is represented by only 7% of the companies in our study.
PwC Middle East today launched its â2021 Middle East Working Capital Studyâ. The study highlights the importance of working capital efficiency as a key measure of business competitiveness and how, now more than ever, working capital management should be viewed as a strategic priority for corporate boards. administration and management teams.
The financial efficiency of businesses in the region declines just when effective cash management and capital efficiency are most needed. Revenue decreased by 14% in the region in the first half of 2020 (compared to the first half of 2019). Governments and businesses in the region have taken various steps to support the efficiency of their working capital in response to the pandemic and the resulting changes in consumer demands. Some sectors and companies have rebounded stronger than expected, while others remain vulnerable.
Latest working capital trends
Although Net Working Capital Days (NWC) remained unchanged during FY20, they continued to show an overall downward trend over the past five years. The working capital performance of the companies in our study was marked by a significant increase in the days payable to creditors. Additionally, the speed at which businesses were able to raise money deteriorated in 2020, hitting the lowest point in the past five years with an average of 99 days to be paid after an invoice is issued. . This deterioration in working capital performance was caused by a combination of factors, but the lack of liquidity and the uncertainty of cash flow resulting from the pandemic are two main factors.
Working capital by company size, country and sector of activity
Larger companies continue to perform significantly better than smaller groups and are three to five times faster when it comes to converting cash. Despite this, the implications of the pandemic have affected working capital in 2020 for all businesses, regardless of size. Companies that had invested in the capabilities and technologies of their people were better able to quickly scale their operations and, as a result, perform better.
Saudi Arabia continues to be the country with the longest working capital cycle in the region. While the performance of the UAE’s working capital has finally seen a turnaround after deteriorating since 2015.
Considering working capital in industries, the engineering and construction sector continues to have the highest average level of working capital, followed by pharmaceuticals and life sciences. As the hospitality and leisure sector saw the second worst year-over-year performance in 2020, impacted by travel restrictions and global lockdowns related to COVID-19. In addition, the health sector has been one of the key sectors that have been affected by the COVID-19 pandemic and it has experienced significant deterioration, despite benefiting from COVID-19 tests and visits. of patients.
Mihir Bhatt, Director of PwC Middle East, said: âAs business resumes to pre-COVID-19 levels, we expect to see reinvestment in working capital and further upward pressure in the short and medium term on average working capital days. This means that companies with a clear strategy for where to invest and how to manage their working capital company-wide will gain a significant competitive advantage. “
Mo Farzadi, Head of Corporate Restructuring Services, PwC Middle East, said: âSupply chain and inventory optimization remains an area of ââsignificant opportunity for companies, not only to optimize capital efficiency, but also to reduce costs contributing to business results. “
About the study
Each year, we review the financial performance of listed companies in the Middle East to assess the performance of their working capital and associated key metrics. This year’s review included 390 publicly traded companies and covered five years of key working capital trends (2016 – 2020) using data sourced from Capital IQ and analyzed by PwC.
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