Food & Beverage Production

DSO 1.4 ⇓

DIO 10.1 ⇑

DPO 2.5 ⇓

DWC 6.4 ⇑

Increase in average DWC driven by growing inventory levels and shorter supplier payment cycles.

Our sample of Food & Beverage Production companies reported an average increase in revenue of 11% during 2019. All aside from one company achieved top-line growth, which was largely driven by higher offshore sales (particularly into the Asian market) for dairy and other products. However, an increasingly competitive environment and higher direct costs impacted margins with only 46% of sampled companies delivering EBITDA growth in 2019.

International expansion and competition create a number of challenges for managing working capital as companies diversify product offerings and supply chains become more complex. Food & Beverage Production companies are also typically required to manage a range of logistical functions including manufacturing, packaging and distribution. A common theme for operators in the sector in 2019 has been a focus on supply chain management through direct sourcing of inputs, and entering into longer-term supply and partnership arrangements to secure supply and reduce price volatility.

The combination of these factors increased the cash tied up in working capital by 6.4 days to 64.2 days in 2019. This reversed the trend over the last two years of net working capital reductions for this sample of companies. The higher DWC in 2019 was primarily driven by a 10.1 day increase in average DIO, with 69% of companies holding inventory for longer. In addition, close to two thirds of the sample paid their suppliers more quickly in 2019, resulting in average DPO decreasing by 2.5 days. Over a third of the companies sampled experienced both an increase in DIO and a decrease in DPO, exacerbating the working capital “strain” in a sector that is already recognised for requiring a higher level of working capital investment than other sectors.

Despite the increase in average DWC across our sample, many companies showed improvement in 2019 (some considerable) including Keytone Dairy, Bega Cheese and Coca-Cola Amatil. Coca-Cola Amatil reported a 10.2 day reduction in DWC, resulting in a notional cash release of over $130 million from working capital.