Cash on the line: Telecom operators and working capital management

North America sees further improvement

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North American operators posted a further significant improvement in net trade WC performance in 2012 relative to 2011.

The net trade WC to sales ratio fell from 0.4% to –0.8%, representing a swing of 1.2%. C2C dropped by 35% to 10 days. Five companies out of six demonstrated improved results in net trade WC and C2C performance.

This stronger WC performance in 2012 was due to much higher DPO (up 16%), helped by an increased focus on procurement and payables. There was also a further drop in DSO (down 2%), despite a further increase in the proportion of postpaid subscribers and the number of these opting for deferred payment plans. In contrast, DIO was up 4%, while levels of advance billing decreased further from 3.7% to 3.4% of sales.

Telecoms trend watch:

  • Revenues shift towards data
  • Increased smartphones sales
  • Ongoing consolidation among operators
  • Greater opportunity to negotiate favorable payment terms with customers and suppliers, while rationalizing product and service offerings.

In these latest results, the net trade WC to sales ratio for telecommunications operators in North America reached a new low of –0.8% in 2012 (it has been dropping since 2006, when it stood at +1.9%). Progress in the past six years came from much lower DSO (down 17%) and higher DPO (up 7%).

In contrast, DIO was up 4%, while levels of advance billing decreased from 3.6% to 3.4% of sales. Over the period under review, four out of six operators in North America reported improved performance in net trade WC (five operators had a lower C2C in 2012 than in 2006).

Opportunity for improvement

As revealed by our research, the variations in net trade WC performance between North American operators suggest some potential for improvement.

A high-level benchmarking analysis indicates that the six leading North American operators have between US$6.0 billion and US$9.3 billion of cash unnecessarily tied up in WC processes, equivalent to between 1.8% and 2.8% of sales.

In relative terms, the reported cash opportunity figures for North America are much lower than in Europe, partly due to there being fewer surveyed operators, but also because of the homogeneity in payment practices as opposed to the wide variations seen in many European countries.