Food and drink manufacturers are shrugging off Brexit uncertainty to enter the second half of the year in bullish mood, according to a new report by BDO.
Strong business confidence, NPD and export potential meant more than 80% of sector suppliers said they expected revenue growth of up to 20% in the next year.
The Food and Drink Report 2017 found that 73% of those surveyed remained positive about the future of the industry.
“The food sector, for a long time, has had to deal with lots of complexity, which has equipped manufacturers for hard times,” said Paul Davies, head of food and drink at BDO. “They are experienced in navigating difficult trading conditions. These pressures have been there before, but it is a very robust sector; we all need to eat.”
Just more than half of those surveyed said NPD and investment in production would be a major source of growth, with 49% and 46% saying access to new UK markets and export markets respectively would be an increasingly important part of growth strategies.
M&A appetite is also on the up, with 27% of firms (up from 15% in 2016) expecting growth to come from transactional activity.
However, challenges remain as operating margins continue to be squeezed, with almost a third of manufacturers (28%) reporting a decrease in margins this year as raw materials inflation impacted the bottom line. Volatility of input costs, foreign exchange fluctuations, pricing pressures from the supermarkets and Brexit were the four biggest challenges in the year ahead for the sector
More than 30% of manufacturers said they were not confident a favourable post-Brexit environment would be negotiated for the industry, with 37% unsure of the outcome.
Access to labour and skills emerged as the top Brexit worry for 57% of respondents, followed by access to raw imported material (49%), overall trading performance (43%) and the regulatory environment (20%).
Export opportunities was the only strong positive among eight categories when companies rated the positive impacts of leaving the EU, with 31% expecting Brexit to be a boost to overseas sales.
“Food and drink businesses are a driving force of growth, contributing jobs and revenue to the UK economy, yet they are at risk of being overlooked as the UK prepares to leave the EU,” Davies added.
“The government can do more to support the industry by ensuring they have open and simple access to world markets to successfully continue trading and deliver growth through new export opportunities. With a workforce where about one in four employees are non-UK EU nationals, the government needs to deliver simple access to global talent to help secure the industry’s future.”
Investment in automation continues to grow in the industry, with many seeking to mitigate rising labour costs, driven by the national living wage, and higher input prices, as well as safeguarding against potential shortages in staff caused by Brexit and reducing waste.
Two-thirds (66%) of the companies surveyed, up from around half (51%) in 2016, planned to invest in manufacturing automation.
Food and drink is the biggest manufacturing sector in the UK, accounting for 16% of the total manufacturing industry, generating revenues of £83.7bn a year and creating GVA of £21.9bn.
The BDO Food & Drink Report 2017 surveyed 48 manufacturers, with turnovers ranging from less than £1m to more than £300m - 70% of the respondents were mid-market businesses with revenues of between £10m and £300m.
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