Premier Foods and Dairy Crest hit by retailers' woes

The study from financial specialist Company Watch revealed the firms were “at risk of insolvency​” after analysing the published financial accounts of the largest 681 food, non-alcoholic beverage and clothing manufacturers in the UK.

The results showed that 173 firms, or 25% of the total, were currently in its “warning area​” with health ratings of 25 out of 100.

As a result, many firms, while having acceptable levels of profitability, reported weak balance sheets that lacked the “necessary strength​” to support trading, according to the report.

Squeezed​

This made them particularly vulnerable to being squeezed by their “powerful”​ retail customers as costs continue to rise.

“Examples of low-rated companies include Premier Foods, the owner of many famous food brands​,” the report said.

“It has a Company Watch score of only 14 out of 100 and has been in the warning area for the past five years​.”

Cathedral Cheese maker Dairy Crest also slipped into the warning area in March 2011 and saw its rating plummet further to 16 after it published its interim figures in September.

Britvic scored only marginally higher with a score of 17, driven by the high level of intangible assets, which are almost 15 times the firm’s net worth, the survey revealed.

Nick Hood, head of external affairs at Company Watch warned that more firms would continue to face insolvency as the financial health of the sector deteriorated further in the face of rising energy costs.

Upward pressure​

He said: “The accounts we examined are mainly for periods ending during the latter part of 2010 and early 2011, which means that these figures do not yet reflect fully the upward pressure on manufacturers costs from rising energy and commodity prices. ​

“Once these feed through, we can expect the financial health of the sector to deteriorate further, with more manufacturing companies falling into our warning area and becoming vulnerable to insolvency or restructuring​.”

But Julian Wild, food group director at law firm Rollits, told FoodManufacture.co.uk that, although a factor, pressure from the retailers was not solely to blame for some firms' troubles.

He said: “The problems that have affected Premier Foods were largely to do with its previous acquisition strategy and as a result the company has been forced into selling off a number of businesses.​

“I think Dairy Crest has been caught in a very tough liquid milk market. Basically there are a different set of problems facing different companies.”​

But he conceded that firms faced a “very tough environment​” and confirmed that it was inevitable that a struggling retail market would have a “knock-on effect​” for the sector.