This website uses cookies primarily for visitor analytics. Certain pages will ask you to fill in contact details to receive additional information. On these pages you have the option of having the site log your details for future visits. Indicating you want the site to remember your details will place a cookie on your device. To view our full cookie policy, please click here. You can also view it at any time by going to our Contact Us page.

'Some food firms aren't worth investing in'

03 December 2010

Many company owners in the food processing industry are bemoaning the scarcity of bank lending to businesses but market analysts Plimsoll says the banks are right – many companies in the market are just not worth the risk

“Recent high profile failures in other sectors (namely the travel and construction sectors) show the danger of operating on micro-profit margins and the same thing could be heading to the food processing industry in 2011,” says Plimsoll.

“342 companies in the market exist on low profit margins of less than 1.5% with 168 of these making a loss. Any bump in the road will be enough to see them fail because they cannot rely on cheap credit to see them through anymore.”

Plimsoll further states that there are some perfectly good companies being turned down and it's essential banks should play their part in getting business moving again. “However, nobody should blame them for refusing credit to companies that might not be able to pay it back.”

Many companies are turning up at the bank saying “We spend almost as much as / more than we make”, says Plimsoll. “The financial sector was correctly vilified for reckless lending that lead to the economic crisis but in at least 342 cases in the food processing industry they are right. If banks are to meet government and electorate demands to lend responsibly then many companies with consistently low margins pose too big a risk.”

Plimsoll says it also seems debt levels have little to do with the ability to secure funding. “Even companies with minimal or no debt are struggling to get credit if they have thin margins, there is simply too much risk attached. We picked 113 such companies in the UK Food Processors industry who have little to no debt but have profit margins that are just too thin.”

On the flipside, there is good news for 97 prudent companies that made tough decision early and focused on the bottom line instead of chasing sales over the last few years – they now have the edge in the market, says Plimsoll. “Ironically, these are the companies that the banks are most willing to lend to. One or two of these solid companies should look to capitalise on this advantage and borrow money to invest in their future through a couple of smart acquisitions.”

Readers of Food Processing are entitled to a £50 discount of this new special edition of the Plimsoll Industry Analysis – Food Processors. Call 01642 626400 for further details and quote reference PR/FI38.


Print this page | E-mail this page

RELATED CONTENT...


Article image 2014 set to be a year of opportunity for frozen food?

The outlook for frozen food in 2014 is positive across both foodservice and retail sectors, according to the British Frozen Food Federation (BFFF), as the UK economy starts to show signs of real recovery.Full Story...

Article image HMRC targets VAT evasion in food sector

A new initiative announced by HM Revenue & Customs (HMRC) confirms it's continuing to focus its attention on the food and beverage sector according to business and finance advisers Grant Thornton UK LLPFull Story...

DBC secures £35m deal with Lloyds TSB

Green shoots from good seeds?

'A commitment to advice and funding’

MOST VIEWED...


Article image Getting the Industry 4.0 journey started

Suzanne Gill finds out why the UK food industry needs to embrace the idea of Industry 4.0 and why the journey needs to start now. Full Story...

Article image Spray and save on the glazing process

Food glazes are widely used in the bakery sector to improve the look and taste of baked products. Traditionally, this coating process has resulted in substantial waste. Technology advances mean that this is no longer the case. Full Story...

Oil-free compressor breaks with tradition

Don’t get left out in the cold this Christmas

What role does refrigeration play in the supply chain?

http://www.appetite4eng.co.uk