UK manufacturers’ confidence dips over Brexit uncertainty

A survey has revealed business confidence has fallen 20% within UK food and drink manufacturers including companies in the confectionery sector, over Brexit trading uncertainties.

Despite this, the study results from the business advisory firm BDO, found that many companies still intended to implement investment and automation plans for production lines.
The consultancy’s latest report found that 60% of manufacturers surveyed are generally positive about the future of the industry, with three quarters (76%) expecting revenue growth and 67% believing order levels will increase in the next year.

However, companies highlighted confusion over the UK’s planned exit from the EU as posing the biggest threat to businesses trading stability for the year ahead.

With just weeks to go before the next crucial trading talks over Britain’s future relationship with the EU, the government has yet to confirm its position as to whether any form of customs union will be pursued to ensure tariff-free trading.

According to the BDO report, concerns over skills gaps and labour are still a major concern to the industry and the UK’s relationship with the EU is only adding to the worry for business leaders.

Less than a quarter (24%) of respondents believe the Government can negotiate a favourable post-Brexit environment for the industry and only 2% think Brexit will have a positive impact on their business in the next year.

Paul Davies, head of food and drink at BDO, said: “Food and drink businesses are heavily reliant on overseas labour, with one in three workers being from the EU. The majority of firms we’ve spoken to believe that Brexit is likely to have a negative impact on attracting labour and skills in the future, and naturally that’s becoming a growing concern for them.

“It is crucial the government provides some clarity over our EU exit quickly and further supports an industry that is a huge driving force for our economy.”

Despite the challenges, firms still see a future worth investing in. For almost 90% of food and drink manufacturers, productivity is a major focus area. Two thirds (63%) are looking to make better use of staffing resources and half (54%) are aiming to improve materials utilisation and reduce waste.

This is also driving investment in automation. According to BDO’s report, the objective for almost 50% of all automation projects currently underway by manufacturers is to boost productivity.

One example is 3V Natural Foods, behind the Meridian Foods brands, which includes a series of healthy snack bars.

The group of companies has grown from £7m to £29m in the five years to 2017. Neil Butler, finance and operations director at 3V Natural Foods, credits their wide product ranges and ability to be flexible in production to that financial success. However, that has meant that operations are relatively labour intensive. He says: “If Brexit results in a restricted labour supply, this could result in upward cost pressure and so we are proactively seeking to increase automation in our processes over the next two to three years.”

Looking at where future growth opportunities will come from, more than half are turning to new product development to boost sales.

The two second biggest drivers of growth were refreshing existing product ranges and expansion into new domestic markets. Only 19% see expansion into new export markets outside the EU as a priority.

Davies adds: “The focus on new product development highlights the value of innovation within the industry.

“The government has committed to boost spending on R&D incentives, however there is still a relatively low awareness around the range of activities that might qualify. I would urge that R&D tax reliefs should be high on the agenda for innovative food and drink businesses.”

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