Q2 working capital - Cash conversion cycles working out in an economic boom


Deep Dive

Q2 working capital - Cash conversion cycles working out in an economic boom

Ben Hoskin's avatar
  1. Ben Hoskin
13 min read

We return with the latest edition looking into working capital trends and dynamics within European High Yield. Previous editions have focused on companies going cap-in-hand to suppliers in order to extend payables terms and keep cash in the business as the pandemic took hold in 2020, and the implications supply chain financing (aka reverse factoring) on the cash conversion cycle in the wake of the Greensill insolvency scandal in March 2021.

As activity returns, most companies have seen sales soar compared to last year, but inflation in raw materials, and supply chain issues have hit several sectors hard. Two companies that stood out in our analysis are Takko and Boporan, with Takko’s cash conversion metrics plunging despite strong improvements in its retailer peers, and Boporan’s tiny cash position vulnerable as inventory effects roll off. A monster payables outflow due to production slowdowns at Jaguar Land Rover courtesy of the global semiconductor chip shortage was also of note.

Looking into the Q2 dynamics, there were two clear themes across the dataset that we analysed (n=149; removing outliers of +/-100 day delta in the cash conversion cycle):

  1. A strong snapback in sales in many sectors
  2. Inflation and supply chain issues are flowing through to working capital
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