Company News: Ernst and Young Last Update: 29 Oct 2009

Press Release: Top consumer products companies could release up to US$29 billion in cash

Date: 18 Dec 2008
Category:
Description: A new study of the world’s largest consumer products companies reveals that better management of working capital could release between US$15 billion and US$29 billion, roughly equal to 16% of the their net debt.

Ernst & Young study reveals significant potential for cash improvement

London, 18 December 2008 — A new study of the world’s largest consumer products companies reveals that better management of working capital could release between US$15 billion and US$29 billion, roughly equal to 16% of the their net debt.

In Consumer products industry and working capital management, Ernst & Young reports that improved working capital management policies could release much-needed cash to help companies boost liquidity in the current economic downturn. In the short-term, slowing consumer demand and tightened credit conditions, compounded by commodity price and currency volatility will severely affect the industry’s cash flow and its working capital in particular.

“Our results show there are currently wide disparities in working capital performance across the industry as a whole and within segments. Both brewery and food and beverages have made progress in reducing levels of working capital since 2002, while performance in household and personal care shows some deterioration,” says David Sage, author of the report and Head of Working Capital Services, Ernst & Young.

An effective working capital management strategy can yield the best opportunities for improvement by focusing on the following actions:

Incentivizing cash performance
Effective management of payment terms for customers and suppliers
Improving credit, billing and collections processes
Close monitoring of rebates, discounts and other sales incentives
Establishing best-in-class demand forecasting
Building greater linkage and closer coordination across the entire supply chain
Improving procurement – for example, by reducing the supplier base to get better leverage in negotiations and developing e-sourcing

Sage concludes, “Liquidity in the capital markets is at an all-time low, and with the conservative attitude banks are taking toward lending at the moment, businesses will need to look at all methods available to access to cash. Those who put working capital at the top of their agenda, and get it right, will have a chance to access ‘free’ capital, be rated above the competition and be best placed to take advantage of business opportunities.”

About Consumer products industry and working capital management

The study is based on the public financial statements of 23 top US and European branded consumer products companies (by sales) operating in the segments of brewery, food and beverages and household and personal care. The companies included in the analysis were: Brewery – Anheuser-Busch, Carlsberg, Heineken, InBev and SabMiller; Food and beverages – Cadbury, Campbell, Coca-Cola, Danone, General Mills, Heinz, Kellogg’s, Kraft Foods, Nestlé and PepsiCo; and Household and personal care – Beiersdorf, Clorox, Colgate, Kimberly-Clark, L’Oréal, Procter & Gamble, Reckitt Benckiser and Unilever. The segments and companies were selected on the basis of common features and business issues, such as fast-moving products, brand, global reach and scale. The report compares working capital performance, assesses levels of cash opportunity and identifies several key areas for improvement.

About the Global Consumer Products Center

Whether it’s squeezed margins, brand erosion, business complexity or new regulatory requirements, today’s consumer products companies must think differently in order to prosper. Ernst & Young’s Global Consumer Products Center brings together a worldwide team of professionals to help you achieve your potential — a team with deep technical experience in providing assurance, tax, transaction and advisory services. The Center works to anticipate market trends, identify the implications and develop points of view on relevant industry issues. Ultimately it enables us to help you meet your goals and compete more effectively. It’s how Ernst & Young makes a difference.

About Ernst & Young

Ernst & Young is a global leader in assurance, tax, transaction and advisory services. Worldwide, our 135,000 people are united by our shared values and an unwavering commitment to quality. We make a difference by helping our people, our clients and our wider communities achieve their potential.

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Ernst & Young refers to the global organization of member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients.

This news release has been issued by EYGM Limited, a member of the global Ernst & Young organization that also does not provide any services to clients.