Learning How to Grow Return on Capital Employed

Back in 2012, Bonduelle shareholders and top management workshopped a new vision for the company. The result was an ambition to be the world reference in 'well living' through vegetable products. With this in mind, Bonduelle launched a progressive initiative of 22 projects called VegeGo! to help reach this goal. One of these projects looked to embed financial value creation into the DNA of the business. Some six years in, the project is already delivering great results.

Given my background and experience, it was inevitable that out of the 22 projects Bonduelle decided to initiate, I was attracted to the project called (at that time), ‘Bringing a financial focus to our day-to-day management’ – otherwise known as Project 21. Launched in 2012 as part of the company’s new vision, the aim of the project was to further integrate the concept of financial value creation into our day-to-day decision-making processes in the pursuit of profitable, capital-efficient growth.

One of the exciting and innovative aspects of the project was that a non-finance person, a plant director, was chosen to manage it initially. This was important, as it was a way to make sure that the project spoke for the company as a whole, not just the finance function. To get the ball rolling, a team of sixteen – including me – from across the Group worked for over a year, studying different business cases around the topic. 

As part of this research, we visited other companies which we felt had achieved a good level of financial focus in their day-to-day management. While we were on site, we took the time to find out about each company’s cash culture and how to embed this within an organisation, learning about the key successes and challenges that those companies had experienced throughout their journeys. This included seeing some businesses who had actually failed to fulfil their ambitions, because there are lessons to be learned from these experiences too. 

Building out the scope

The project team gave our initial conclusions to the executive committee at the end of 2014, explaining how we believed we could achieve the desired level of financial focus within the day-to-day management of the company. They were very supportive and truly believed that we could make this happen at Bonduelle, so it soon became a concrete part of the company strategy. From then on, I was asked to manage the project, which we renamed ‘Finance For Growth’. 

To ensure we were able to really deliver on our objectives, I built a team whose competencies were closely tied to the different pillars of the project, the first of which is financial performance. We decided that we wanted to look deeper into the company to find out what kind of financial performance we were able to measure and improve. There had already been a lot of work done on the profitability of the company – the growth of revenue and rise in profit – and we determined that financial creation for Bonduelle could be measured by the return on capital employed (ROCE), in addition to profitability ratios. 

The second pillar of the project is communication. This starts at the very top of the company with the CEO talking about the project. If the CEO is convinced, and if the overall top management has bought in to the concept, then the whole company will believe in the idea, but the message and culture has to come from the top. In addition, we have newsletters dedicated to the Finance for Growth project, and it has its own logo and branding, which really helps to make the communication stand out.

The third pillar is training. Generally speaking, the overall knowledge of financial matters across the Group is only perfunctory – as is the case in most corporates, since people rarely need this specialist understanding, except for those in the finance function, of course. As such, as soon as you talk about certain financial ratios or explain some figures, you will lose the attention of many of the managers. Training therefore seemed like a great solution – to help make stakeholders aware of financial matters, and at least conversant with the basics. 

So, the project as a whole consists of explaining to management why it is important to have a financial focus; we give them the tools to do that, we train them around the concept, and finally we reward them. Finance For Growth is now included, at top management level, in the company bonus policy, at both individual and collective levels.

Growing the project

The next step, was to start delivering some concrete benefits for the company by getting the project properly under way. Having already demonstrated to the executive committee that we were able to unlock some cash from the balance sheet, we had their full support to target (as an initial step) a 10% improvement in our net capital employed, which equates to circa €100m. 

The end goal is to meet our target of 12.5% ROCE by 2025 to support our future plans, but we needed to begin with a smaller win. The success of these kinds of projects is always about having a series of mini-projects and small wins along the way – and to celebrate achieving those in order to maintain the momentum. To work towards our €100m target, therefore, we began extensive communication and training exercises in 2015. We started these programmes from the top, taking advantage of an existing annual two-day general meeting that we have with the 50 main managers of the company. 

We were able to extend that meeting by another two days for group training and workshops – all run by the project team at Bonduelle. The workshops pushed the managers outside their comfort zones, as they had to put together business cases and pitch them to our Group CFO. But it was a really effective way of getting their buy-in for the project and fostering a collaborative approach to embedding the concept of a cash culture within the organisation.

Another tool that we began using at around that time was e-learning, which was a first for Bonduelle. This was a great way to give other managers across the Group the opportunity to reach the appropriate level of finance knowledge. And interestingly, the e-learning helped to amplify the reach of the project because the people we trained to use it became our best ambassadors, encouraging their teams to do the training as well. 

Today, we have more than 700 managers that we have trained across the Group. And the beauty is that once they are trained, they can become trainers. Our ambition is to train as many again, giving us around 1,500 managers, including everyone from middle management - from offices to people in the factories - who are really onboard with the Finance for Growth project.

Moving forward

As the project matures, the goal is naturally to embed financial thinking into Bonduelle’s DNA, rather than it being a conscious effort as such. Nevertheless, we still want to be able to track the performance in relation to ROCE and the success of the project – as well as communicating that news to the business at every relevant opportunity. Each time we have a finance business review, for example, we include a dedicated moment to Finance For Growth. And at our twice-yearly finance committee, which brings together all the CFOs from all the countries worldwide, we now include a session focused on the project.

What’s really great is that the hard work we have put in over the past few years is starting to pay off. At the beginning, we were pulling people to work on the project, for example. We are at that point where people proactively come to us with ideas such as best practices they have identified and share them with the finance committee. This is not limited to the managers, or those behind desks, though: people from the factories are also keen to share with us what they have been doing on their inventories to support Finance For Growth, complete with results. 

Financing the working capital requirement

And actually, inventory management is one of the biggest challenges our business faces. Customers may enjoy buying our peas at the supermarket all year long, for instance, but we only produce them for a limited period of time each year. This means that we have to store them for a long time. As such, we have huge inventories, which in turn means that we have a significant working capital requirement that needs to be financed. The lower the inventory, the lower the debt. So, an inventory optimisation project has formed part of Finance for Growth.

Thankfully, there were some fairly easy steps that we could take in this regard, such as reviewing the way we buy and store spare parts for our machinery. We used to always have spare parts in our factories to ensure they could continue running smoothly. But by asking the supplier to keep the parts on behalf of Bonduelle, and simply making them available as and when we need them, we have been able to significantly reduce our inventories and working capital, whilst freeing up space in the warehouse. 

This is just one example of how Finance for Growth is making the company more efficient. We have also worked extensively on areas such as our accounts receivable too, and there are many other exciting ideas in the pipeline to help unlock more working capital. After all, the cheapest money you can find is almost always that which is trapped within your balance sheet. Moreover, doing this helps support both the goals of Finance For Growth and the future of the company as a whole – which is arguably what the treasurer’s role is all about.