ADDITIONAL $11.1 BILLION IN CASH “LOCKED UP” IN WORKING CAPITAL

McGrathNicol Advisory profiled the working capital performance of 139 ASX listed companies across seven working capital intensive sectors, with a combined market capitalisation of $1 trillion. Our sample includes ASX listed companies in the Agriculture, Building Products, Construction & Engineering, Food & Beverage, Mining & Resources, Retail and Transport & Logistics sectors. We have analysed the most recent full year (FY) results for 2022 and 2021, the half year (HY) performance across both years, and incorporated international benchmarks for Asia, the EU, and the US.

2022 saw trading conditions “normalise” somewhat (H2) however COVID lockdowns and the ongoing impacts of the pandemic, particularly on global supply chains, continued to challenge businesses. COVID-related stimulus and consumer savings created high demand in many sectors, particularly Construction & Engineering and Retail, however this was combined with increasing inflationary pressures, higher operating costs, and supply side constraints. Of our sampled companies, 86% experienced an increase in revenue, however only 58% were able to convert this into an increase in earnings (compared to 86% in 2021).

Average working capital cycles lengthened by 5.3 days in 2022, “locking up” an additional $11.1 billion in cash. This is the second consecutive year we have seen a net increase in overall metrics, and highlights the challenges that businesses have had in managing working capital (particularly inventory loads) during a period where shifting demand, supply chain constraints, and inflationary pressures have been commonplace.

To supplement our analysis, we conducted an in-depth survey of over 300 Managing Directors, CEOs, and CFOs to understand how they manage working capital. The survey responses highlighted the difficulties that most operators have had in managing working capital over the last two years, and the expectation that challenges will continue into 2023 as management teams attempt to “right size” their working capital loads amidst less certain macroeconomic conditions.