Cashflow problems cripple UK food manufacturers as economy recovers

The number of firms in food and drink production experiencing ‘significant’ or ‘critical’ financial problems in the first quarter of 2010 rose 24% to 631 (compared with 507 in the last quarter of 2009), according to corporate recovery expert Begbies Traynor.

The firm, which measures 'corporate distress signals' from companies in a range of industries, classes those with either a court action pending and/or poor, insolvent or out-of-date accounts as having 'significant' problems.

Those with county court judgements totalling £5,000 or more and/or wind-up petition-related actions are judged to have 'critical' problems.

Access to finance​

The figures proved that the recovery in UK food manufacturing remained fragile, Begbies Traynor partner Nick Hood told FoodManufacture.co.uk. "While the economy appears to be showing positive signs of recovery, these figures demonstrate that those green shoots are fragile and that we cannot take a continued recovery for granted. ​

"The recovery phase poses special problems for those manufacturing businesses seeing much-welcomed growth, as they struggle to access the extra working capital they need to fund their expansion. More sales means more working capital."​

He added: “Across all sectors we are seeing trade creditors increasingly seizing the opportunity of an improved economic climate, to take action against their debtors in order to raise much needed working capital. ​

"This shift in behaviour heralds a new phase in the cycle, putting manufacturing companies experiencing financial problems at greater risk of failure than ever."​

Asda et al pile on the pressure​

While the food manufacturing sector had proved far more resilient than many other sectors during the recession, the low inflationary environment and the fierce competition between the supermarkets meant 2010 was going to be a very tough year, predicted Hood. "You can squeeze a grape just so far and eventually the pips come out."​

His comments came as Asda promised to guarantee to beat rivals on price on 13,000 lines and Northern Foods​ announced plans to close its Swansea Chinese ready meals plant after failing to secure price increases from Sainsbury.

On the plus side, recent figures from the Association of British Insurers (ABI) showed that trade credit insurance claims​ have dropped from a peak in early 2009.