DSO 1.6 ⇓

DIO 23.0 ⇑

DPO 12.1 ⇑

DWC 7.1 ⇓

Largest reduction in DWC driven by lower DSO and higher DPO, which was required to support higher inventory levels.

The Food & Beverage sector delivered strong results in 2022 with a 20% increase in the average revenue of our sampled companies. 80% of operators reported revenue growth, with strong demand from e-commerce channels, US and Chinese markets turning to Australian producers for items such as infant formula and olive oil. Record consumer spending also translated into higher demand for higher-cost, healthier and more environmentally conscious ingredients.

The sector was also able to absorb the rising commodity prices (specifically dairy) and wider supply chain and inflationary pressures better than most sectors in 2022, with average gross and EBITDA margins increasing by 2-3% across our sample.

From a working capital perspective, the Food & Beverages sector was also the best performing sector, with the average DWC of our sampled companies falling by 7.1 days (to 91.4 days). This was driven by a 1.6 day reduction in average DSO (to 44.0 days) and a 12.1 day increase in DPO (to 70.9 days). 70% of the sample increased their DPO and close to two thirds of these operators extended their supplier payment cycles by two weeks or more. Notably, average DPO rose considerably in H1 2022 before being corrected in H2 2022 (in line with longer term averages) as cash flows normalised following the last round of COVID lockdowns.

Interestingly, the focus on customer collections and supplier payments appears to have been directly correlated with an increased investment in inventory by our sampled companies in 2022. 70% of our sample carried higher inventory, with the average DIO increasing by 23.0 days (to 138.5 days). This was the largest movement in average DIO of all sectors covered, and reflects the cautious approach by operators to protect themselves from out-of-stock positions post-COVID and in response to global supply chain pressures. The large spread in DIO between the “best” and “worst” performers in our sample (419.8 days) can also be attributed to the mix of inventory types being managed, from perishables to products and ingredients with longer shelf-lives.

The average DWC of Australian operators remained higher than all other international counterparts with inventory the main differentiator. Asian, European, and North American companies held 1.5 – 2.5 times less inventory than their Australian counterparts in 2022.

Looking forward, we anticipate mixed fortunes for operators in the Food & Beverage sector, with interest rate and cost of living increases likely to impact discretionary spending. As supply chains normalise, it is also likely that management teams will look to reduce inventory levels to free up cash and return to more of a “just in time” (rather than “just in case”) inventory management model.

“While top-line growth contributed positively to profitability, it also necessitated and required working capital to support this accelerated expansion, including building inventory to mitigate the current logistics environment…”

Dennis Lin, Executive Chairman
Bubs Australia Limited
Full year report to 30 June 2022 – Chairman’s address 30 August 2022


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 2021 2022 Change
DSO 45.6 44.0 (1.6)
DIO 115.5 138.5 23.0
DPO 58.8 70.9 12.1
DWC 98.5 91.4 (7.1)
Food & Beverage - half year
Days H1 2022 H2 2022 Change
DSO 41.4 41.0 (0.4)
DIO 123.0 137.8 14.8
DPO 95.3 67.8 (27.5)
DWC 69.4 85.5 16.1
Best & Worst
Days Best Worst Spread
DSO 1.1 98.1 97.0
DIO 5.1 424.9 419.8
DPO 108.0 38.9 (69.1)
DWC (26.4) 280.2 306.6
International Benchmarking
Days Asia EU US
DSO 40.1 52.1 30.7
DIO 70.0 84.5 49.5
DPO 59.3 104.5 75.6
DWC 49.2 33.8 17.8