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FM survey: Two thirds of food manufacturers expect profit margins to improve

By Elaine Watson , 05-Jul-2010
Last updated on 07-Jul-2010 at 13:24 GMT

Relentless pricing pressure, late payment and overzealous supermarket buyers notwithstanding, confidence levels amongst UK food manufacturers appear to be improving, according to Food Manufacture’s annual 'state of the nation' survey.

While our survey highlighted familiar gripes about customers that don't pay their bills, buyers seeking ever ever more imaginative ways to screw suppliers and worries about new EU labelling and claims legislation, a whopping 76% of food manufacturers polled claim to feel more positive about the future now than a year ago.

Almost two thirds (65%) believed profit margins would improve this year, while 50% planned more capital investment this year than last year.

Mixed picture

But comments from several respondents also revealed sharp differences in outlook, with some manufacturers pointing out that the prospects for different firms in the sector varied considerably, adding: "Obviously there is a future [for the UK food manufacturing industry], but how successful will it be? Niche branding and small scale manufacture certainly has a future."

As for margin improvement, this again depended on the leverage of the firm with its key customers, the condition of its assets and whether it was selling something with a real point of difference in the marketplace, said one senior manager.

"Retailers are putting enormous pressure on brands and I can only see margins being further eroded. Unless there are some serious cost saving measures driven by my company, then I can't see margins improving."

As for money for capex projects, he added: "No chance. Things were bad this year and there will be even less available next year, guaranteed.

"Generally companies are having to spend on automation and basically projects that have quick returns. The days of return on investment of five years are long gone."

On the issue of whether more resource would be devoted to training, he said: "Surprisingly, I fully agree. I think it has come around that investment is being put in now because of underfunding over the last few years."

Access to finance

While most respondents (54%) disagreed with the statement, 'Lack of access to finance has had a detrimental effect on my business this year', a sizeable minority (37%) agreed, with one pointing out: "It's disappointing to see that, despite the clearly improving trading conditions, finance providers are still holding back British businesses."

One factory general manager added: "Investment plans are high but plans are all they are, the expense and complications in getting reliable finance is putting a lot of plans on hold."

But another added: "I feel there has been too much made of this. Finance is available but at a cost! Also, there is a need to recognise that security needs have been higher; damaged businesses may not have been able to reach new hurdles [set by finance providers]."

English Farming and Food Partnerships (EFFP) business development director Mike Ader said the survey correlated with the findings of a recent EFFP survey which found that “generally, food businesses have not had a problem or concerns regarding funding for capex projects".

However, he also added a word of warning: "We've been advised that a substantial number of re-financing negotiations will be coming up next year, which could influence the supply of funds as well as the deals available. Our advice would be for manufacturers to stay close to their current finance partners to ensure that access to funds is not jeopardised."

Cause for celebration

Other respondents had a far more positive spin on the findings, with Food and Drink Federation head of communications Julian Hunt pointing out that the food manufacturing sector had "weathered the recent economic storms better than any other manufacturing sector".

He added: "It is reassuring to see that so many companies are planning to invest more in their people, products and processes and that they remain so positive about the future prospects of the UK food manufacturing sector. We should celebrate the fact that food and drink manufacturing is a great British success story - and like 91% of Food Manufacture readers, we feel it has a great future."

One md in the ambient sector said: "It is clear that unemployment did not rise by as much as was feared – companies retained labour through innovative deals on pay and other retention measures – but the converse is that we will not see significant employment growth until some time after economic activity begins to climb again.

"It's encouraging, however, to see that companies are planning to invest in training their people, the only way to remain competitive."

He added: "It's clearly good news that the availability of credit insurance is improving – that’s our experience as well. However, it may also be a factor of the demise of the poorer risks in the retail chain, so that the quality of the remainder has improved."

Provision Trade Federation director general Clare Cheney said the "overall results closely reflect the picture we get back from our members. The one surprise was that only 91% thought there was a future for the UK food manufacturing industry. Why wasn't it 100%?"

Survey results: MARKET CONDITIONS

1. I am more positive about the future of my company now than a year ago.
• Agree 76%
• Disagree 21%
• Don’t know 3%

2. I expect my company's profit margins to improve over the next year.
• Agree 65%
• Disagree 28%
• Don’t know 7%

3. Lack of access to finance has had a detrimental effect on my business this year.
• Agree 37%
• Disagree 54%
• Don’t know 9%

4. I see a long-term future for the UK food manufacturing industry.
• Agree 91%
• Disagree 5%
• Don’t know 4%

Survey results: INVESTMENT AND EMPLOYMENT:

1. My company is planning more capital investment this year than last year.
• Agree 50%
• Disagree 37%
• Don’t know 13%

2. My company will take on more staff this year than last year.
• Agree 26%;
• Disagree 47%
• Don’t know 17%

3. My company currently has vacancies in key roles.
• Agree 36%
• Disagree 59%
• Don’t know 5%

4. My company plans to employ more overseas nationals this year.
• Agree 20%;
• Disagree 56%
• Don’t know 24%

5. My company plans to devote more resources to training this year than last year.
• Agree 59%
• Disagree 30%
• Don’t know 11%

For the full survey results, click here.