Research Alert - REL/CFO Europe Survey Sees European Working Capital Rebound; After 2005 Setback, Companies Liberate EUR 46 Billion (GBP 31b) in 2006

After a major setback in 2005, Europe’s 1,000 largest companies (excluding automakers and financial institutions) resumed their course of working capital improvement in 2006, liberating €46 billion (£31b), largely through better bill collection and improved inventory management, according to results of the Tenth Annual Working Capital Survey conducted jointly by REL and CFO Europe magazine. However, one element of working capital – the speed at which companies pay suppliers – worsened for European headquartered companies in 2006. Among the reasons identified by the REL/CFO Europe analysis: companies are now taking advantage of early payment discounts, and also paying early for consignment inventory to improve flexibility. Another reason is that a growing number of companies are sourcing goods globally, working with suppliers much further afield than they have in the past. REL, an Answerthink company (NASDAQ: ANSR) is a world-leading consulting firm dedicated to delivering sustainable cash flow improvement across business operations. The European survey, which will be featured in the July/August issue of CFO Europe magazine, found that the 1,000 largest publicly-traded companies in Europe (by sales) cut their working capital by 6.6% in 2006. These gains followed a year in which working capital improvement stalled in Europe for the first time since the REL/CFO Europe survey was initiated in 1998. Typical European companies in the REL/CFO Europe survey saw Days Working Capital (DWC) of 45.2 in 2006. This included: Days Sales Outstanding (DSO) of 54.7, representing a 6.1% improvement over 2005; Days Payables Outstanding (DPO) of 44.6, which was 4.4% worse than 2005; and Days Inventory Outstanding (DIO) of 35.0, a 4.6% improvement over 2005. The number of industries where European companies reduced their overall working capital in 2006 improved by nearly 50% compared to 2005. Industries where companies showed the greatest DWC improvement included: Road & Rail, Distributors Industry, Media Industry and Food & Staples. Industries where DWC performance degraded or showed the least improvement included: Diversified Telecommunications Services, Gas Utilities, Air Freight & Logistics, and Semiconductors & Semiconductors Equipment. "Thankfully for shareholders, last year’s poor showing proved to be a blip, not a trend,” said CFO Europe Senior Editor and Working Capital Project Leader Jason Karaian. "In fact, the number of days working capital on the average company’s balance sheet reached a five-year low in 2006. That freed up cash to invest in new ventures or back into the business, pay down debt or buy back shares.” Despite the 2006 gains, there is no room for complacency. Europe’s 1,000 largest companies (excluding automakers and financial institutions) still have €611 billion unnecessarily tied up in working capital. According to REL President Stephen Payne, "European companies saw strong improvements in both receivables and inventory this year, which is great. But their overall working capital gains were hindered by a reduction in the number of days that companies took to pay suppliers, which increases working capital needs. Some companies, seeking to decrease cost in support of earnings, are paying suppliers quicker to take advantage of early payment discounts. Other more advanced companies are paying suppliers faster in exchange for the supplier providing consignment inventory, which is held on the customers’ site, but at the suppliers’ cost. This reduces payables, but also reduces their inventory and as importantly it improves the companies’ ability to respond to unanticipated customer demand. "Finally, globalisation is having an impact on the payables of European companies,” explained Mr. Payne. "As companies source more of their products in Asia, payables tend to decline for several reasons. First, purchase costs are lower, therefore the value of accounts payable reduces. Also, because the contractual currency for sourcing in Asia is generally the U.S. Dollar, the weakening of this currency makes the importing of products even cheaper. This improves margin, but also reduces payables and has a negative impact on working capital metrics.” A parallel survey of total working capital performance at the 1,000 largest publicly-traded companies (by sales) in the U.S. found no improvement in 2006, after nearly a decade of annual working capital reductions. But even with this year’s gains, overall total working capital performance by European companies was still 18% worse than that of their U.S. peers. Findings from the REL/CFO survey will be featured in the July/August issue of CFO Europe and the July issue of CFO Magazine. A more detailed REL analysis of the survey findings is also available online at:www.relconsultancy.com/twcEU, or at www.cfoeurope.com. Note: All data presented in this Research Alert excludes automotive manufacturers, which can sometimes skew results because of their large financing arms. Financial institutions, including banks and insurance companies, are also excluded from the survey due to their limited working capital needs. About REL REL is a world leading consulting firm dedicated to delivering sustainable cash flow improvement across business operations. REL’s tailored solutions balance client trade-offs between working capital, operating costs and service performance. REL’s expertise has helped clients free up billions of pounds in cash, creating the financial freedom to fund acquisitions, pension liabilities, product development, debt reduction and share buy-back programs. In-depth process expertise, analytical rigour, and collaborative client relationships enable REL to deliver an exceptional return on investment in a short timeframe. REL has delivered work in over 60 countries for the Fortune 500. REL is a sister company of The Hackett Group, a global strategic advisory firm is a leader in best practice research and advisory programs, benchmarking and transformation consulting services including shared services, offshoring and outsourcing advice. More information on REL is available: by phone in the UK at +44 207 003 8150; in France at TEL: +33 1 53 43 0400 by or in Germany at +49 69 900217 0 or e-mail at info@relconsultancy.com; or on the Web at www.relconsult.com/. About CFO Europe CFO Europe is owned by CFO Publishing, an Economist Group business. With a rate base of 47,000 CFO is the leading business publication for "C-level” and senior financial executives. It reaches an international audience of corporate leaders as part of the global group of magazines, including CFO in the US, CFO Asia, and CFO China. For more information, visit www.cfo.com.