The withdrawal of credit insurance has been the source of significant tension between Uniq and its supply base in recent weeks as the loss-making firm has come under pressure to improve its trading terms from suppliers.
Speaking to Food Manufacture after posting an £8.4M operating loss on sales down 0.6% to £797.2M in the year to December 31, 2008, Uniq chief executive Geoff Eaton said: “Credit insurers have pulled back dramatically from the market and suppliers [who can no longer secure credit insurance to cover dealings with Uniq] are therefore trying to get better terms out of us.”
However, Uniq was sticking to its terms, he insisted, and suppliers pushing for faster payment for their wares or even cash-on-delivery because they did not have insurance cover were out of luck. Payment terms had to be balanced throughout the supply chain or major cash-flow problems would ensue, especially as it was now so difficult to secure credit from banks, he said. “We’re sticking to our terms, but we’ve had to spend a lot of time talking to our suppliers and convincing them that we are fine. The whole thing has created a lot of tension and yes, we have had to change some of our suppliers as a result.”
He added: “The contraction in availability of credit insurance is causing significant additional stress in the food sector supply chain.”
Eaton, who unveiled plans to sell or partially offload the Continental European businesses and re-focus on the UK market, said he hoped to return to the black next year. “We have appointed Oddo Corporate Finance in France and Stamford Partners in Northern Europe to pursue consolidation opportunities to create value through, joint venture or sale and we will focus our resources to build a stronger business in the UK for the longer term.”
The UK division, which made an operating loss of £3.3M in the past financial year, was hit by falling consumer confidence, a £15M increase in input prices, an over-dependence on premium products and “operational challenges” at its desserts facility in Evercreech, Somerset, said Eaton. Buyers had also blundered by locking the firm into long-term milk supply contracts at relatively high prices in late 2007 to secure supplies only to find that the milk price subsequently dropped, he said.
“Disappointing new product development” was also blamed for the poor results at the desserts division, which saw a 7.7% slump in revenue for the year to £152.5M.
To add to Uniq’s woes, its pension fund deficit had also increased dramatically during the year while its market capitalisation had correspondingly fallen, he said. “We will work closely with the pension trustees to find the most appropriate path to manage the assets and liabilities of the scheme to meet our obligations.”
However, there were some green shoots on the horizon, said Eaton, who sold off the firm’s seafood business Pinneys for £1.4M earlier this year. “In the UK we believe we can build on our position in food to go and desserts and the turnaround opportunity in salads where we are starting to make encouraging progress. “We’ve just picked up some new business supplying salads to Pizza Hut and launched the Simply Sandwich range at Marks & Spencer. In a market suffering from over-capacity the Smedleys [salads] team also started to make encouraging progress in 2008, securing significant new business with sales to Morrisons increasing 46%.”
Given that Uniq currently supplied the Co-operative Group but did not supply Somerfield, the merger between the two could potentially unlock new opportunities, he added. “It’s too early to say what will happen, but we see this as an opportunity.”