Transport & Logistics

DSO 7.2 ⇓

DIO 0.8 ⇓

DPO 2.4 ⇓

DWC 6.0 ⇓

Large reduction in DWC driven by shorter average collection cycles (lower DSO).

Our sample of Transport & Logistics companies reported an average growth in revenue of 13% in 2019 as activity levels increased on the back of favourable trading conditions for customers in the Mining & Resources, Food & Beverage Production and Construction & Engineering sectors. Whilst a number of operators delivered improvements in network efficiency, only 78% of the sample reported EBITDA growth as rising fuel costs and other cost pressures dampened margins.

Average DWC decreased by 6.0 days to 42.7 days in 2019, with two thirds of the sample reducing their net working capital load. This was driven by a 7.2 day reduction in DSO. Notably, it was the second consecutive year that our sample of Transport & Logistics operators were able to shorten collection cycles. Of the companies that reduced DSO, 80% were able to do so by more than two weeks.

Whilst 55% of the sample reported a structural ”funding gap” (meaning companies paid their suppliers on shorter terms than they collected from their customers), all aside from two of these companies were able to reduce the size of the gap through better debtor collection efficiency. Given that the sector is typically defined by suppliers (fuel, subcontracted labour, warehousing) that are inflexible on terms, the ability to tightly manage debtor collections is critical for Transport & Logistics companies in managing cash flow and avoiding liquidity pressures.

On the payments side, average DPO decreased by 2.4 days. Of the sampled companies that reduced DSO, 60% also paid their suppliers more quickly in 2019. Inventory loads remained relatively stable (and relatively low).

Brambles, MMA Offshore and Auckland International Airport achieved the biggest DWC improvements in 2019. Whilst still carrying a higher working capital load than a number of its peers, MMA Offshore was able to reduce the length of its net working capital cycle by over three weeks, equating to a release of approximately $16 million in cash.

Note: airlines were excluded from our sample due to the contrasting nature of their working capital cycles (often negative) and the size and scale of their operations (which disproportionately skew the sample set).