Heavy borrowing and investment hurting UK firms, says study

By Jane Byrne

- Last updated on GMT

Heavy borrowing linked to an ambitious investment strategy has left some of the largest UK food processors in severe financial difficulty, claims a new report.

A study by market analyst, Plimsoll, assessed the financial performance of the UK's top 100 food manufacturers over the last 12 months and gave 29 of the companies a danger rating due to what David Pattison, senior analyst at Plimsoll, described as a "failing business strategy​". "The largest food processors, in aiming to get the edge over their competitors, have overstretched themselves by heavily investing in product development, plant infrastructure, new equipment and green packaging initiatives, and have seen little by way of return due to the turbulent economic climate of 2008,"​ Pattison told FoodProductionDaily.com The study also found that 72 of the food processors have failed to increase sales at the same rate as their investment, while 47 companies increased their debts simply to maintain their market position. Market share squeeze​Food companies will have to rely on their own cash reserves rather than borrowing, claims Plimsoll, as hikes in raw material and energy prices will continue to impinge on the industry over the coming months. A scramble for market share is also intensifying pressure on UK's food processors, according to to the report. The study concluded that the UK's largest 100 food manufacturers now control 89 per cent of the market, an increase from 85 per cent two years ago, but suggests that the value of the top 100 food processors fell by around 40 per cent over the past 12 months. "These companies need to have a serious rethink when it comes to their business models,"​ warned Pattison. "It is likely that jobs will be lost and key projects could be cancelled in an attempt to control the spending, but for some companies it could well be a case of too little, too late."Consolidation​ Plimsoll claims that consolidation is the key to survival in this competitive environment and the report identifies companies that could be potential acquisition targets. "This is an ideal opportunity for the more visionary leaders in the market to steal some ground on their competitors by buying up one of these weakened players,"​ added Pattison. Flexibility​ The Food and Drink Federation (FDF) declined to comment on the claims within the Plimsoll study but said that adaptability is the key to survival for smaller companies in such a competitive marketplace. "Small and medium sized enterprises (SMEs) can benefit from being more flexible than their larger counterparts and therefore can be more innovative, reacting quicker to new trends,"​ the group stated. "They are closer to the consumer and can have a better understanding about what the consumer really wants."​The FDF created the SME Forum last year to provide members with the key business information needed to remain competitive, particularly covering new legislation and regulation.

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