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UK plcs sitting on £64bn cash pile

23 May 2012

  • Excess working capital in UK plcs up from £61 billion in 2010;
  • Increasing use of payables to maintain working capital performance.

UK plcs are sitting on £64bn of excess working capital (the amount of money a company requires to fund its day-to-day operations), according to new research by Deloitte. The report entitled, ‘Working Capital: The £64 billion question’ found that the cash, if released, could be used to help fund business growth or overcome temporary market downturns.

The report identified that this excess capital is up from £61 billion in 2010 and £59 billion in 2009. One of the most significant findings was that UK companies are delaying payments to suppliers in order to help fund their working capital.  On average, suppliers were being paid a week later in 2011 than two years earlier. While this may lead to short term working capital improvements it may also lead to future issues with supplier relations, costs and viability.

Results from Deloitte’s Q1 2012 CFO survey highlighted that increasing cash flow and reducing costs were key priorities for CFOs.  The majority of CFOs surveyed, said that they aim to run higher cash balances than before the financial crisis.  Because of this, the amount of excess working capital in UK plcs is still rising.

Andrew Harris, partner in Deloitte’s advisory development group, comments: “As the UK economy has technically entered a recession, cash and its effective use, will continue to remain high on the corporate agenda. To put the £64 billion figure into context, this is more than enough to pay the UK Government’s debt interest payments for the next 18 months. The paradox is that, with the appropriate focus, working capital can be one of the cheapest and most accessible forms of funding available to a business.

“The nature of working capital is such that effective cash management is important during recessionary periods to provide protection against market uncertainties, while in expansionary periods it can fund controlled growth. In the retail sector, working capital initiatives are being driven by the need to bridge gaps caused by downturns in revenue. Some sectors, such as pharmaceuticals are using the benefits from working capital programmes to fund industry consolidation and future growth.

“While external factors are often cited as the prime drivers of working capital performance in these sectors, an all encompassing focus on revenue and profit margin is often the key driver. It is our experience that a significant amount of working capital can be released without adversely impacting the underlying business,” Harris added.

-ENDS-

Notes to editors:

About the Deloitte working capital report
Deloitte’s Working Capital: The £64 billion question report provides a sector and geographic analysis of the working capital performance of 20,800 global companies over a five year period. This enables absolute working capital performance and trends to be identified at an industry, country and individual company level.

About Deloitte
In this press release references to Deloitte are references to Deloitte LLP, which is among the country's leading professional services firms.

Deloitte LLP is the United Kingdom member firm of Deloitte Touche Tohmatsu Limited (“DTTL”), a UK private company limited by guarantee, whose member firms are legally separate and independent entities. 

Please see www.deloitte.co.uk/about for a detailed description of the legal structure of DTTL and its member firms.

The information contained in this press release is correct at the time of going to press.

Member of Deloitte Touche Tohmatsu Limited

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