Agriculture

Slight increase in average DWC and remains the sector with the highest inventory and overall working capital loads.

After consecutive years of higher sales, our sample of Agriculture companies reported an average 8% fall in revenue during FY24. Amongst a range of challenges, the El Niño event led to drier conditions, reducing crop yields in some sectors from the record highs in FY23. However, early 2024 rainfall did improve the outlook for winter crops, such as wheat and barley. Despite the lower sales, operating costs were well managed across the sector, with average gross and EBITDA margins remaining stable (relative to the prior year).

In terms of working capital performance, average DWC increased by 0.3 days to 151.7 days, driven by a 5.4 day increase in DSO (to 58.4 days) and a 3.5 day increase in DIO (to 188.3 days). Of particular note, the sector reported the highest DIO and DWC of all sectors covered in FY24. Interestingly, there was a mix of outcomes across the sample, with 80% of companies actually reducing their inventory holdings (and 50% of these companies doing so by lowering DIO by two weeks or longer).

To offset the impact of the increased inventory load and longer collection cycles for some operators, average DPO increased by 12 days (to 83.4 days) in FY24. However, only one third of the sampled companies that saw an increase in DSO were able to counter this by paying suppliers more slowly, signifying the complexities of managing working capital in this sector. This was also reflected in the large movements across all working capital metrics at the individual company level.

Our Australian sample’s DWC remains significantly higher than our international sample, driven by higher DIO compared to the US, Europe and Asia, and lower DPO compared to our European sample.

Looking ahead, the Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) forecasts a 4% increase in the value of Australian agricultural production in FY25, driven by favourable conditions across much of the country, which are expected to improve crop production and result in higher livestock prices.