17% of growers at high risk of failure - says Plimsoll

Many of the UK's fresh produce firms are too overloaded to survive in their current shape according to latest industry analysis.

The latest analysis from Plimsoll on the UK Fresh Produce industry said tough economic conditions during 2008 presenting companies with a stark choice: hold on to sales at reduced margins, or opt to reduce in size and scale.

The report said 342 of the 1200 firms analysed were losing money, a direct consequence of rising costs and price reductions set against a slowing market.

Senior analyst David Pattison said: Of most significance, is the amount of fresh produce firms using an overdraft as a permanent means of finance - a dangerous position for any company to find itself in.

The banks are taking a critical look at all unsecured finance and are reassessing their exposure to small businesses- this could leave these firms in a position where their overdraft would need paying back on demand. Many of these firms simply cannot afford to do this, Pattison added.

Plimsoll identified at least 207 additional companies as at high risk of failure, unless their problems are addressed.

Plimsoll said 8 out of 10 failed businesses exhibited two key characteristics:

1. The financial performance of the company is allowed to slide. Costs are not brought under immediate control leading to increased debts and interest payments.

2. The final blow- an outside factor hits the company, such as the loss of a large contract, a bad debt, or a slow down in business. The failing company does not have the financial resources to adjust in time and the inevitable occurs.

However, the report found 168 firms which had returned to profit after reporting losses, a result of tighter cost control and a reduction in overheads, said Pattison.

Looking towards the end of the year, Plimsoll predicted increased acquisition activity, based on two main drivers:

1. Predators snapping up temporarily weakened, but essentially sound businesses at bargain prices
2. Larger players in the market may use the opportunity to snap up smaller players in the market who add value to their core business. These companies will be prepared to pay well for these niche companies as they offer a clear and easy route to new markets.

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