DSO 9.7 ⇑

DIO 5.3 ⇓

DPO 5.8 ⇓

DWC 16.1 ⇑

Largest deterioration in DWC driven by higher DSO and lower DPO, despite a material reduction in inventory holdings (particularly in H2).

The Food & Beverage sector delivered strong results in 2021 with a 7.2% increase in the average revenue of our sampled companies. Notably, companies such as Freedom Foods and Dominos returned JobKeeper payments due to sustained trading activity across H1 and H2 2021 (with average revenue at its “peak” in H2 2021 compared to the previous three half year periods). Trends from 2020 continued, including increased at home and direct to consumer consumption, healthier eating habits and natural ingredient choices (tied to favourable agricultural conditions). Whilst the direct impacts of COVID were not felt in revenue, many operators were impacted by supply chain disruptions.

Average working capital cycles lengthened by 16.1 days to 71.3 days in 2021, locking up an additional $400 million within our sampled companies. The slower cash conversion was primarily due to the reversal of the faster customer collections achieved in response to COVID in 2020. Average DSO increased by 9.7 days to 37.7 days.

Inventory management remains key to working capital performance for Food & Beverage companies. Average DIO decreased by 5.3 days (to 90.4 days) due in part to a deliberate effort by some management teams to reduce stock levels and improve the ageing and quality of stock on hand, particularly in H2 2021 (but also due to the abovementioned supply chain issues). Inventory levels actually rose materially in H1 2021 (when there was a corresponding dip in sales), suggesting the sector was anticipating a faster bounce back from the first wave of COVID.

It was also a year of two halves for our sampled companies with respect to their supplier payment behaviours. Suppliers were paid a week slower on average in H1 (compared with H2 2020), a common lever to offset higher DSO and DIO. Supplier payments accelerated by nearly two weeks in H2 2021 as trading conditions and cash flow improved.

From an international perspective, the average DWC of our sampled companies was higher than all other regions with inventory the main differentiator. Asian, EU and US companies held at least one month’s less inventory than their Australian counterparts in 2021.

Looking forward, trading activity is expected to increase as borders reopen, international demand resumes, and local hospitality restrictions ease. Operators’ main concerns will be access to stock and effective supply chain management.

View the Food & Beverage sector video, highlighting key findings from the 2021 McGrathNicol Working Capital Report.

“…the elevated inventory was a consequence of managing the uncertainties and complexities of COVID impacting supply chains, compounded by lower sales…”

The a2 Milk Company
FY21 Annual Report


COVID-19 Impact

Net working capital performance

Cash Impact ($'m)*

*A positive cash impact is a “release” of cash from working capital (improvement). A negative cash impact is additional cash invested or “locked up” in working capital (deterioration).

Food & Beverage - Financial Year
Days 2020 2021 Change
DSO 28.0 37.7 9.7
DIO 95.7 90.4 (5.3)
DPO 60.5 54.7 (5.8)
DWC 55.2 71.3 16.1
Food & Beverage - Half Year
Days H1 2021 H2 2021 Change
DSO 31.9 37.7 5.8
DIO 114.2 86.5 (27.7)
DPO 65.2 52.7 (12.5)
DWC 76.4 69.1 (7.3)
Best & Worst
Days Best Worst Spread
DSO 1.0 78.5 77.5
DIO 5.2 265.8 260.6
DPO 104.5 21.5 (83.0)
DWC (23.7) 234.5 258.2
International Benchmarking
Days AU Asia EU US
DSO 37.7 37.1 43.0 24.8
DIO 90.4 56.2 52.5 44.2
DPO 54.7 50.4 88.3 50.6
DWC 71.3 42.7 20.8 21.7