BDO Yorkshire Report 2014: It’s tough but getting better for region’s food and drink sector

FOOD and drink companies in Yorkshire are continuing to feel the squeeze, being caught in the middle of rising costs and increasing pressure from supermarkets to keep prices down, says BDO’s head of audit Paul Davies.

According to the accountancy and business advisory firm’s BDO Yorkshire Report 2014, 18 of the region’s largest companies are in the food and drink sector. 

The sector group maintained revenues of £6bn and increased operating profits by almost 40% to £240m during the reporting period; a “real achievement” says Davies in the context of continued tough conditions.

However, profit margins are still under threat, with companies enduring operating profit margins of just 3.89%, lower than the region’s average for the third consecutive year.

Although the number of people employed in the sector has fallen, there has been a significant increase in capital investment as companies look to ways of improving efficiency and invest in less labour-intensive production methods. 

Further M&A activity is also expected, as companies continue their hunt for consolidation to boost market share and secure access to new products and customers.

Paul Davies, partner and head of audit at BDO in Yorkshire, said: “The food and drink sector has continued to operate in a pressure cooker environment, and they should be applauded for the progress they have made in these conditions.

“By far the biggest opportunity for these companies lies outside domestic markets.  They’ve made great progress during the last 12 months in terms of overseas sales, especially those with strong brands and innovative products that sell well in international markets.”

According to the BDO Yorkshire Report 2014, the percentage of sales to Europe increased by 7.8% to £500m in the reporting period.  But the sector performed even better in terms of exports to the rest of the world, with the value of sales increasing by 17%.

Davies added: “International markets are fast becoming the light at the end of the tunnel for food and drink businesses of all sizes, having struggled to reap the rewards of an improving domestic economy.

“Two thirds of companies in the sector expect 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.”