Information contained on this page is provided by an independent third-party content provider. WorldNow and this Station make no warranties or representations in connection therewith. If you have any questions or comments about this page please contact firstname.lastname@example.org.
LONDON, Feb. 25, 2014 /PRNewswire/ -- FMCG has been a safe sector for investors looking for predictable margins and stable returns during the economic crisis. However, as the global economy improves, the growth-challenged industry risks losing investor interest.
With profitability under pressure in both developed and emerging markets, EY's new Margin Unlocked report uncovers how consumer goods companies are going to have to work much harder to deliver value to shareholders.
"In the last 10 years, consumer products companies have only managed to increase margins by 0.6%", said Richard Taylor, EY Global Consumer Products Advisory Leader. "Although their shares have been something of a safe haven for investors during the downturn, companies are going to have to run much faster to keep their shareholders happy and retain investor interest as the world economy improves and other more volatile sectors potentially begin to out-perform FMCG".
"Consumer products companies are really hurting from what we call the Red Queen effect, where, like in Alice in Wonderland: 'it takes all the running you can do, to keep in the same place.'
Margin improvement is going to be critical to help them speed up their performance over the next 12-24 months," said Andrew Cosgrove, EY Global Consumer Products Lead Analyst.
Barriers to improving margin
Companies identified a variety of reasons why they are failing to grow margin more effectively. According to the report, 39% of companies believe limited margin mindset is the main barrier to improving margins. Other contributing factors include too many locked in fixed costs, insufficient data, a lack of focus from the leadership team, and a lack of margin-related skills and competencies.
Strategies for success that help companies run faster
Sustained improved profitability is one of the most effective routes to retaining investor interest; however consumer goods companies are being challenged from multiple directions. In both developed and emerging markets top-line growth has either slowed dramatically or declined, and continued downward pressure on prices from customers, along with rising input costs, make margin management a complex challenge.
In its Margin unlocked report, EY studied 183 global FMCG companies, including some that have adopted non-traditional margin management behaviours, to find out what makes the difference for high performing companies in the sector.
"On the whole, consumer goods companies recognize that they must apply a more rigorous focus to margin management than has previously been the case", said Gustav Mauer, EY Advisory Director. "The scale of the challenge facing the FMCG sector right now means that companies need a new, company-wide and integrated approach to margin management in order to deliver shareholder value. Our research shows that many consumer goods companies still take a tactical, reactive approach to sustaining or growing margins - making incremental, localized changes focused on a specific part of the profit or loss that fail to deliver sustained, company-wide margin growth."
Three critical success factors identified in research
The report demonstrates there is a considerable range of performance within the industry. Some companies have been able to buck the trend with high performers growing margins from 22.7% to 28.0% - more than seven times higher performance to the rest of the sector.
The report identified three keys to success for FMCG companies looking to outperform in the current environment:
Copies of the report are available here: www.ey.com/CP-margins
The term "margin" refers to operating margin (operating margin/revenue, or earnings before interest, tax, depreciation and amortization EBITDA as a percentage of revenue).
EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over.
We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities.
EY refers to the global organization, and may refer to one or more, of the 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. For more information about our organization, please visit ey.com.
This news release has been issued by EYGM Limited, a member of the global EY organization that also does not provide any services to clients.
EY Global Media Relations
Ernst & Young LLP
+44 (0)20 7980 0673
©2012 PR Newswire. All Rights Reserved.