Our research reveals wide variations in WC performance between operators in Europe, suggesting significant potential for improvement.
In 2011, telecom operators in Europe achieved further progress in WC performance compared with the previous year.
The net trade WC to sales ratio dropped from -4.3% in 2010 to -4.8% in 2011. Cash-to-cash (C2C) fell by 2.4 days to reach a negative figure of 1.7 days.
Ten companies out of 15 reported better net trade WC results (12 companies saw improved C2C performance). The top performers posted a positive net trade WC swing of 0.8%, while the worst exhibited a WC deterioration of a similar magnitude.
The stronger WC performance in 2011 arose from a combination of lower days sales outstanding (DSO) and days inventory outstanding (DIO), down 3% and 4%, respectively, and higher days payable outstanding (DPO), which was up 1%. In contrast, the levels of amounts billed in advance for line rentals and subscriptions (current deferred income) declined from 4.5% to 4.3% of sales.
Change in WC metrics, 2010–11
| Days | 2011 | Change 11/10 |
| DSO | 53.4 | -3% |
| DIO | 5.2 | -4% |
| DPO | 60.3 | 1% |
| C2C | -1.7 | down 2.4 days |
| | | |
| %sales | 2011 | 2010 |
| Net trade WC | -4.8% | -4.3% |
Number of companies showing improved WC performance, 2011 vs. 2010
| | Change 11/10 |
| DSO reduction | 8 |
| DIO reduction | 9 |
| DPO enhancement | 11 |
| C2C reduction | 12 out of 15 |
| | |
| Net trade WC reduction | 10 out of 15 |
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: Ernst & Young analysis, based on publicity available annual financial statements.
A number of factors may explain these WC variations, each with varying impacts on different companies:
- Overall flat sales growth
- Stronger receivables performance
- Inventory initiatives
- Continuing attention to payables
- Falling levels of amounts billed in advance
With these latest results, the net trade WC to sales ratio for telecom operators in Europe reached a new low at -4.8% over the last decade (+1.6% in 2000). Thirteen operators out of 15 reported better results.
Receivables were the main contributor to WC improvement during this period, with DSO down 28%. With regard to payables, performance was marginally better, adversely affected by the efforts made to contain costs and reduce capital expenditure. Inventory performance also improved.
Opportunity for improvement
Wide variations in WC performance between operators in Europe suggest significant potential for improvement.
A high-level benchmarking analysis indicates that the leading 15 European operators have between €11b and €23b of cash unnecessarily tied up in WC processes, equivalent to between 3.1% and 6.6% of sales.
For Europe, the range of cash opportunity is higher than a year before (when it was between 2.9% and 5.8% o f sales), with payables in particular showing a significant increase. This suggests that the spread of WC performance between operators has widened.
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