Regional and country performance review

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US vs. Europe performance comparison

The WC performance gap between the two regions narrowed significantly last year. Europe regained almost twice the amount of ground it lost in the previous year (outperforming the US by 6% after having underperformed by 3%).

Germany showed significantly improved WC performance (C2C down 4%), after a slight deterioration the year before.

Comparisons between the WC performances of the two regions should be approached with a particular nuance in mind. Since some of the business done by North American and European companies takes place outside their home regions, their WC results to some degree reflect global market conditions as well as those in the regions where they are based.

Nevertheless, the US continued to exhibit much lower levels of WC compared with European-based companies. Overall C2C for the US in 2012 was two days, or 5% below that of Europe.

This was primarily due to a strong performance in inventory (minus four days, or 11%). The differential between receivables and payables cycles (DSO-DPO) across both regions was two days, with the effect of generally longer trade terms in Europe than in the US being mitigated at the net level.

There are many possible causes for the gap in WC performance between the US and European regions:

  • Production, logistics and distribution facilities in Europe tend to be smaller and dispersed over many different countries.
  • Transport takes longer and logistics costs are higher in Europe than in the US.
  • The US benefits from a unique trading currency and the absence of national borders.

European country performance comparisons

In Europe, each sub-region and country except the UK reported an improvement in WC performance.

Of the seven main sub-regions and countries in Europe, the UK was the only one reporting worse WC results in 2012. Its C2C increased by 4% — wiping out the entire gain registered in the year before when the country significantly outperformed its peers.

This deterioration in performance came mostly from poor results in inventory (DIO up 6%). Construction, mining and tobacco companies scored poorly, while aerospace & defense, consumer products and pharmaceutical companies put in a better showing.

In contrast, France, Germany, Benelux and Nordic countries managed to report a solid improvement in WC performance. France saw a drop of 6% in C2C, driven by a combined decrease in both DSO and DIO.

Cyclical and oil industries and electric utilities all made progress in reducing C2C, with the drop reported by cyclical companies exacerbated by the fall in activity in the final months of 2012. In contrast, food and general retailers scored poorly, still affected by the regulatory decision to cap corporate payment terms.

Germany showed significantly improved WC performance (C2C down 4%), after a slight deterioration the year before. But performance between and within industries was varied: for example, it was mixed for electric utilities, chemical and diversified industrials companies, and strong for automotive suppliers and consumer products companies.

WC changes by European sub-region and country, 2012 vs. 2011

  % weighting C2C change 12/11
Country Sales Companies Overall
Benelux 11% 8% -6%
France 21% 16% -6%
Germany 18% 13% -4%
Nordic countries 10% 15% -7%
Southern Europe* 12% 11% -7%
Switzerland 6% 7% -1%
UK 20% 27% 4%
Other 2% 3% nm
Europe 100% 100% -4%

* Greece, Italy, Portugal and Spain

Source: Ernst & Young analysis, based on publicly available annual financial statements