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Total working capital performance depends on getting whole company on side

Alison Wilson’s - innocent ltd, Treasurer - standout talk at the Association of Corporate Treasurers ‘Cash Management’ conference on 13 February entitled ‘Case study: working capital - a balancing act’ described how innocent, the healthy food and drinks company, grew, survived and grew again. The growth from a three-man company in 1999 to being well on their way to being Europe’s leading fruit drinks company with a turnover today of £220 million+ contained many twists and turns. 

First, innocent, don’t just think different, they are different:

  • their purpose, vision and values are really used to set everyone’s (including treasury’s) direction and focus:


 Source & Copyright©2014 -  innocent ltd

  • all staff are called fruitsers, and are given fruit names. e.g. Alison, the Treasurer is called ‘Money Mandarin’ 
  • the company is based on the idea of sustainable capitalism and ploughing some of the success back into doing good (the innocent foundation has received over £4 million so far).

Finding their feet

But innocent couldn’t escape the realities of business. To support the heady growth from the early days they had to focus on and understand the ‘main thing’, the cash conversion cycle:


Source & Copyright©2014 - innocent ltd

This was critical because there was little cash around as they were using their own credit cards and personal loans to fund the business, e.g. waiting for cheques to come in to either pay the credit card bill or the farmer in Somerset. Plus they were working with suppliers who had to trust them, and with small delicatessens and other independent retailers. (No wonder the chart has a sign saying ‘KEEP CALM and FINGERS CROSSED’.) 

To get the whole company to understand what was needed to manage working capital and how they could help, instead of measuring working capital in balance sheet terms, the finance director chose to measure working capital as % of sales revenue. This was understood very quickly, e.g. 1) 10% working capital ratio means that £10 is required to fund £100 of sales, and 2) the larger the number that is tied up in funding sales, the smaller the availability of cash for other investment. 

The working capital in 2006 was 9% of sales, but it rose to 13% in 2008 as the company continued to grow. However, in 2008, which Alison called the ‘annus horribilis’, several things came together in a perfect storm - the financial melt down combined with rapid drop in sales, fruit prices rocketing, FX exposures, and other competitors entered the market. So, not surprisingly, they made a sizeable loss and moved into a negative equity position. 

Surviving annus horribilis and setting up platform for growth

In 2008 innocent worked with their bank, credit insurance companies and key suppliers to convince them of their business plan:

  • first, innocent convinced their bank to keep their loan in the business and then raised equity to stabilise their working capital
  • second, to solve the problem of suppliers wanting to be pre-paid before they shipped the fruit, innocent worked with and briefed credit insurance companies about their performance and their plan, so they would provide insurance to reduce the suppliers’ payment terms 
  • third, focused on a few key suppliers who were critical to their supply chain they negotiated new commercial terms, including extended payment terms, which were a win-win for both innocent and the supplier.

Innocent survived and have since managed their working capital ratio down to some 6% of sales.

Since 2009 innocent have been back to growth and focused on getting great:

Source & Copyright©2014 -  innocent ltd

In working capital terms, this has meant learning the lessons of listening and creating value in their supply chain, see below. Innocent focus on the two areas where they retain ownership of the relationship with the growers and their customers which is where their key expertise and intellectual property lies. innocent outsource the rest of the supply-chain operations. 

One treasury initiative is with suppliers who value other trade variables as well as price. Treasury found that the growers would like to reduce their funding costs and ease their cashflow at harvest time. So treasury are now looking at extending their payment terms via a selective supplier finance offering. If successful, innocent will extend their payment terms to 60 whilst simultaneously reducing their suppliers’ funding costs.

innocent supply chain

​Source & Copyright©2014 -  innocent ltd

Another initiative is to examine with their commercial team opportunities to optimise fulfillment and stock storage costs. The key issue is how to not to have excess stock which is funded by working capital. Treasury have spoken to other companies about how they do this and what customers really want, e.g. would customers really care if innocent only fulfilled their order by 98.5% rather than 99.5%? Perhaps some customers wouldn’t even notice, but the impact of this fulfillment adjustment could have quite a significant impact on innocent’s working capital. When it comes to ingredient storage costs, they are examining the working capital impact of increasing the frequency of intakes of fruit a year (reduced volume each time) on storage and stock balance costs.

Alison believes that an important lesson from this review of the supply chain is how vital it is to understand the detail and the motivators of the different parties in the supply chain to reveal real opportunities for improving working capital management.


CTMfile take: This case study shows how vital the cash conversion cycle is, particularly in the early years, and how crucial it is to keep focussing on cash and working capital whatever your company’s size. It also shows how vital it is to describe working capital in terms (% of sales) that the whole company can understand. The other lesson is how important it is to understand the detail and motivators in your supply chain.


This item appears in the following sections:
Working Capital Management
Inventory Cycle in WCM
Order-to-Cash Cycle in WCM
Procure-to-Pay Cycle in WCM
Total Working Capital

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