Member Article

Exports give green light to food & drink sector growth, says BDO report

Food and drink manufacturers in Yorkshire see export growth as the light at the end of the tunnel after another difficult year, having struggled to reap the rewards of an improving domestic economy, according to accountancy and business advisory firm BDO LLP.

The findings come from the BDO Food & Drink Survey, authored by Paul Davies, head of audit at BDO in Yorkshire. The survey found that more than 80% of food manufacturers in Yorkshire experienced similar or worsening operating margins throughout 2013 compared to the year previous.

Still seen as the ‘squeezed middle’, the two biggest challenges faced by manufacturers and producers are pressures on pricing from customers (39% say it’s their key challenge) and volatility in high raw material costs (26%). In addition, the report states that supply chain integrity is critical to maintaining trust, brand value and market position, with investor and consumer demands increasingly reaching beyond financial governance.

To help swerve domestic challenges, businesses have set their sights on international growth. More than 60% of companies surveyed said they are forecasting to export more than 20% of their sales over the next three years, a huge leap forward compared to the 32% currently exporting at that level.

This trend will come as some encouragement to the Government, which has a public ambition of doubling exports by 2020. Manufacturing is at the heart of achieving this target, with food and drink being the largest sub sector within this.

Paul Davies, Yorkshire-based partner and head of food & drink at BDO nationally, said: “Food and drink companies are being hit from all sides. Customers expect constant product innovation while also demanding that prices are kept low; all this within an environment of close scrutiny on quality brought about by recent food scandals.

“As consumer confidence lifts and economic growth takes hold, it will be interesting to see if margin pressures ease as food and drink companies exploit new growth opportunities in international markets.”

Growth opportunities for the sector also come in the form of consolidation and M&A activity. Declining deal volumes for food and drink companies in 2013 are predicted to reverse in the next 12 months. Interest from overseas buyers and private equity investors is particularly prominent, especially for those businesses with strong brands and innovative products that sell well in international markets.

Chris Archer, head of food and drink at Yorkshire Bank in Leeds, says the consistency of demand for food and drink products means the sector is still viewed as attractive for bank lending.

“Food and drink companies often pose a more attractive option for lenders since people still need to eat and drink, and banks focus on trading businesses. The relative strength and stability of companies in the food and drink industry, coupled with strong asset bases, means that funding is available to help well run businesses invest in new projects and fund corporate growth ambitions.”

This was posted in Bdaily's Members' News section by BDO LLP .