China and India lead the field for WC performance, attributed to a high DPO and low DSO.
In contrast with Europe and North America, operators based in the other seven regions covered by our survey (Africa and Middle East, Asia-Pacific, China, Central and Eastern Europe, India, Latin America and Russia) reported a further deterioration in WC performance in 2011 compared to 2010.
The net trade WC to sales ratio increased from -9.0% to -8.5%, with C2C up 13% over that period. Results varied among regions and operators.
Change in WC metrics, 2010–11
|Days ||2011 ||Change 11/10 |
|DSO ||43 ||0% |
|DIO ||7 ||10% |
|DPO ||63 ||-2% |
|C2C ||-13 ||13% |
| || || |
|%sales ||2011 ||2010 |
|Net trade WC ||-8.5% ||-9.0% |
Source: Ernst & Young analysis, based on 2011 publicly available annual financial statements
Last year’s weak WC performance was due to lower DPO (down 2%) and higher DIO (up 10%). With regard to receivables and deferred income, performance remained almost unchanged.
Four regions — Asia-Pacific, China, India and Latin America — posted a year-on-year deterioration in WC performance, mostly on the back of weakness in payables performance. This is likely due to lower levels of capital spending, as infrastructure becomes more mature.
These latest results mean that the net trade WC to sales ratio has deteriorated significantly since 2005, reaching -8.5% of sales compared with -9.4%. This mostly came from much lower levels of deferred income (from 5.6% to 4.8% of sales) — closer to those seen in Europe and North America. Over the same period, C2C was almost unchanged.
Variations in WC performance
Overall, other regions’ current WC to sales ratio of -8.5% demonstrates stronger performance relative to both Europe and North America.
Performance in individual regions varies considerably, however, reflecting the characteristics of each market and variations in business models deployed by operators. Key factors include:
- Fixed-line/mobile and pre-pay/post-pay mix
- Local payment practices and methods
- Levels of capital expenditure in each marketplace
China and India lead the field for WC performance, attributed to a high DPO and low DSO. Russia also scores well in WC. There is little material difference in current WC performance across Africa and Middle East, Asia, Central and Eastern Europe, and Latin America.
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