Cash & Liquidity Management

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Optimising Working Capital at Numico Numico has put a strong emphasis on optimising its working capital in order to retain its competitive position within the baby food and clinical nutrition sector. This article describes the four principal objectives of the working capital project that the company initiated in 2006, how these were achieved in practice and the benefits of having a centralised approach to financial supply chain management which means that expertise is concentrated within Treasury, allowing subsidiaries to concentrate on their core business activities.

Optimising Working Capital at Numico

by Albert Hollema, VP Treasury, and Ramon Tolk, Treasury Accountant, Numico

Numico is a high growth, high margin, specialist baby food and clinical nutrition company, acquired by Danone in October 2007. Acknowledged as the European and Asia Pacific market leader in infant nutrition and medical nutrition, products range from infant milk formula to specialised nutrition for babies and mothers. For people with specific nutritional requirements, Numico offers a complete range of enteral clinical nutrition, diet products and disease-specific nutrition. An important element in retaining the company’s competitive position has been a focus on optimising its working capital. For example, the Introduction to the Financial Statements as part of the 2006 Annual Report read,

“We were able to generate healthy cash flows through continued high levels of profitability and substantial reductions in working capital”

Tying up large amounts of capital adds no value to the company.

To achieve this, Numico established an internal initiative to reduce working capital within the company, This article explains the objectives of this working capital project and how we achieved these in practice.

Objectives of working capital project

Companies use their cash for a variety of purposes in addition to funding working capital requirements, such as financing acquisitions, investing in research and development, share buy backs and capital expenditure. While many of these have a direct impact on the competitive position and value of the company, tying up large amounts of cash in working capital adds no value to the company. The project was therefore set up to identify where reductions in working capital could be achieved and find ways to achieve this. The objectives of the project included:

  • Clarify the need to reduce Trade Working Capital (TWC) (fig 1)
  • Create a common understanding of the drivers which affect TWC levels and a new DWC (Days Working Capital) methodology of measuring TWC (fig 1)
  • Share best practices and tools for reducing DWC
  • Identify local business practices and also local issues, with a view to addressing these
  • Build a global DWC platform, building in local best practices to the ‘DWC Toolbox’ and extending the Global DWC Champions Network.

These initiatives would then fuel DWC improvement activities and cascade the DWC principles and tools across the organisation.

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