Cash on the line: Telecom operators and working capital management

Europe's performance remains unchanged

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In 2012, the working capital (WC) performance of telecommunications operators in Europe remained unchanged compared with the previous year, at –4.8% and –2 days, respectively, for net trade WC to sales and cash-to-cash (C2C). This stability contrasts sharply with the gains achieved in recent years.

Out of 15 companies, seven reported better net trade WC results (eight companies saw improved C2C performance), posting a positive swing of 0.6% overall. In contrast, the worst performers saw a deterioration of 0.3%.

A number of factors may explain these WC variations, each with varying impacts on different companies:

  • Overall flat sales
  • Stronger receivables performance
  • Inventory challenges
  • Mixed payables performance
  • Stability in the levels of advance billing

In these latest results, the net trade WC to sales ratio for telecommunications operators in Europe stands at a low at –4.8%, meaning that it has been dropping since 2000 (when it stood at +1.6%). Thirteen operators out of 15 reported improved results.

Receivables have been the main contributor to WC improvement since 2000, with DSO down 30%. Inventory performance also improved (DIO down 24%), but its impact remains small in comparison with other WC metrics given the relatively low level of inventory inherent to this business. By contrast, payables performance was marginally worse, with DPO down 1%. Levels of advance billing in relation to sales were unchanged.

Opportunity for improvement

The wide variations in net trade WC performance between different operators in Europe revealed by our research indicate significant potential for improvement — up to €25 billion of cash for the leading 15 operators.

Our high-level benchmarking analysis indicates that the leading 15 European operators have between €13 billion and €25 billion of cash unnecessarily tied up in WC processes, equivalent to between 3.7% and 7.2% of their combined sales. Note that the range of cash opportunity is lower than a year before (when it was between 4.0% and 7.9% of sales on the same calculation basis), suggesting that the spread of WC performance between operators has tightened.