Farm Tender Daily

Farm Tender Daily - All the news from Friday, the 1st of March, 2024.

By Dwain Duxson - Click here to go to the Farmer Tender website.

Bloody Supermarkets - Because we have our event on today, we have decided to make this edition brief. We have been talking about Supermarkets in the past and how they treat Farmers. You will see below in the summary from Mike their average payment terms. It's deplorable, but Mike gives a description of why they do it. That doesn’t mean they should, as they need to find a way to shorten those payment terms and come into the real world like all of us. Here is Mike's summary. There has been alot of work going into this.

Hi Dwain

Your comments on this caught my eye, and as a former accountant, I had to take a look at the 2023 Annual reports of Coles and Woolworths. In the following observations, in order to extract the relevant information, in the case of Coles, I have to include the Liquor division with Supermarkets; in the case of Woolworths, I can only look at their consolidated financials. Here is what I have found:

Coles (Supermarkets and Liquor)
Sales $41 Billion
Gross margin 26%
Cost of sales $30.3 Billion
Net profit before tax $1.5 Billion
Trade Payables (outstanding supplier payments) $5.7 Billion ( Known as no cost working capital )

No. of days supplier payments outstanding = 69

If suppliers were paid on a 7-day basis, it would require funding of $5.1 Billion. If they financed this by borrowings at, say 8%, it would cost them $410 Million, reducing their NPBT to $1.1Billion (from $1.5 Billion)

If they financed this through a capital raising, it would reduce their EPS (earnings per share), Dividend ratio, P/E (price to earnings ratio), resulting in their share price reduction.

Woolworths: (all operations)
Sales $64 Billion
Gross margin 26%
Cost of sales $47.4 Billion
Net Profit before Tax $2.4 Billion
Trade Payables $7.6 Billion

No. of days supplier payments outstanding = 59

If suppliers were paid on a 7 day basis it would require funding of $6.7 Billion. If they financed this by borrowings at say 8% it would cost them $540 Million, reducing their NPBT to $1.9 Billion (from 2.4 Billion)

If by capital raising, same impact as for Coles

Given Coles has only $600 Million cash on hand, and Woolworths has $1.135 Billion, neither of which makes much of a dent in the working capital required ($11.8 Billion). Their only other option (apart from borrowings or capital raising) is to sell assets or reduce inventories.

Suppliers do not have a hope in hell of even getting close to a 7-day payment (unless they cop a hefty early settlement discount)

Hope your readers find this of some interest. (I will go back to Farming now)

Mike

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Dwain Duxson
P - 0427 011 900
E - [email protected]