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Telecom operators and working capital management 2011 - North America sees working capital improvement - EY - Global

Telecom operators and working capital management 2011

North America sees working capital improvement

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The leading six North American operators have between US$3 billion and US$7 billion of cash unnecessarily tied up in WC processes.

For North American operators, there was a further improvement in WC performance in 2010 relative to 2009. The net trade WC to sales ratio fell from 1.1% to 0.3%, with C2C dropping by 14% over that period.

WC progress in 2010 was due to lower levels of receivables and, to a lesser extent, higher levels of payables. Levels of deferred income increased from 3.8% to 3.9% of sales, while inventory performance deteriorated.

Overall, five companies out of six reported a year-on-year improvement in WC performance.

Telecom trend watch

North American operators are seeing the following trends.

  • Revenues shift toward data
  • Prepaid cellphone plans increasing in popularity, boosted by the rise of smartphones
  • Ongoing consolidation among operators

Change in WC metrics, 2009–10


Days 2010 Change 10/09
DSO 40.0 -6%
DIO 4.7 5%
DPO 29.6 1%
C2C 15.1 -14%
     
%sales 2010 2009
Net trade WC 0.3% 1.1%

Number of companies showing improved WC performance, 2010 vs. 2009


  Change 10/09
DSO reduction 2
DIO reduction 2
DPO enhancement 5
C2C reduction 5 out of 6
   
Net trade WC reduction 4 out of 6

Note: DSO (days sales outstanding), DIO (days inventory outstanding), DPO (days payable outstanding) and C2C (cash-to-cash), with metrics calculated on a sales-weighted basis

Source: EY analysis, based on publicity available annual financial statements.

Opportunity for improvement

Variations in WC performance between operators in North America point to significant potential for improvement.

A high-level analysis suggests that the leading six North American operators have between US$3 billion and US$7 billion of cash unnecessarily tied up in WC processes, equivalent to between 0.8% and 2.2% of sales.

Analysis shows that the cash opportunity comes primarily from payables (three-quarters of total), with the rest evenly split between receivables and inventories.

WC cash opportunity, 2010


  Cash opportunity
  Value (US$b) % WC scope* % sales
  Average Upper quartile Average Upper quartile Average Upper quartile
Receivables 0.4 0.9 1% 3% 0.1% 0.3%
Inventories 0.3 0.7 7% 17% 0.1% 0.2%
Payables 1.8 5.1 7% 31% 0.6% 1.7%
Total 2.5 6.7 4% 11% 0.8% 2.2%

*WC scope = sum of trade receivables, inventories and accounts payable

Source: EY analysis, based on 2010 publicly available annual financial statements.

For a detailed regional analysis, please see tables 5 – 8 (noted in the pdf).

DPO per operator, 2010


DPO per operator, 2010

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