Consolidation has provided the industry with opportunities to drive greater cash and cost efficiencies from operations.
For North American operators, there was a further improvement in WC performance in 2011 relative to 2010.
The net trade WC to sales ratio fell from 0.3% to 0.1%, with C2C dropping by 9% over that period.
However, only two companies out of six showed improved results in net trade WC (half of them saw improved C2C performance). Accounting for three-quarters of the industry’s total sales, these two posted a positive net trade WC swing of 0.6%, compared with a negative swing of 0.8% for the worst performers.
Change in WC metrics, 2010–11
|Days ||2011 ||Change 11/10 |
|DSO ||39.6 ||-2% |
|DIO ||3.4 ||-27% |
|DPO ||29.1 ||-2% |
|C2C ||13.9 ||-9% |
| || || |
|%sales ||2011 ||2010 |
|Net trade WC ||0.1% ||0.3% |
WC progress in 2011 was due to a combination of lower DSO and DIO (down 2% and 27%, respectively). In contrast, DPO fell by 2%. Levels of deferred income also decreased from 3.9% to 3.7% of sales. The top performers reported much improved receivables and inventory results but lagged in deferred income.
Number of companies showing improved WC performance, 2011 vs. 2010
| ||Change 11/10 |
|DSO reduction ||4 |
|DIO reduction ||3 |
|DPO enhancement ||3 |
|C2C reduction ||3 out of 6 |
| || |
|Net trade WC reduction ||2 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.
Telecom trend watch:
- Revenues shift towards data
- Increased smartphones sales
- Ongoing consolidation among operators
With these latest results, the net trade WC to sales ratio for telecom operators in North America declined to 0.1%, its lowest point since 2006 when the figure reached 1.9%. Progress came primarily from receivables, with DSO down 16%.
Inventories are also much lower (DIO down 26%). In contrast, payables performance remains poor, with DPO dropping by 8%. Over the period under review, five out of six operators in North America reported improved performance in WC.
Opportunity for improvement
Variations in WC performance between operators in North America point to significant potential for improvement.
A high-level benchmarking analysis suggests that the six leading North American operators have between US$3b and US$7b of cash unnecessarily tied up in WC processes, equivalent to between 1.0% and 2.1% of sales.
Analysis shows that the cash opportunity derives primarily from payables (two-thirds of total), with the remainder split between receivables (20% to 25%) and inventories (15%).
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