Protel track capex project activity across the main process sectors to help suppliers win new business. In this article we aim to present a quick and easy to digest run-down of the main trends and developments in a highlighted sector of the process manufacturing industries in one of our covered regions. For more information on the areas we cover, click here.
In our previous industry update we reported that we were yet to see how the UK’s decision to leave the European Union would impact food & drink capex in the UK. At the time, nothing much of substance had changed and, while this is still the case, companies have now had time to process the result. Companies have therefore started to adapt investment programmes within the context of the likely future outcomes of the referendum result.
We did see manufacturers taking a ‘wait and see’ approach due to the uncertainty surrounding the UK’s future relationship with Europe. However, the picture is becoming slightly clearer.
Feedback from key players in the industry coupled with statistics from our project database indicated that 2017 started slowly. Q1 showed a reduction in planned project investment levels, with many schemes being evaluated or adjusted given the uncertain political & economic future.
Currency fluctuations have affected material & commodity costs, meaning adjustment for food & drink manufacturers and reassessment of capex budgets. This is reflected in our project statistics, with a greater proportion of projects being placed on-hold or review compared to the same period in 2016.
Mergers and acquisition decisions were also slowed at the start of the year, though look set to accelerate through 2018. Some UK-related food sector/drink sector examples include:
As we move through 2017, a pattern of peaks and troughs in both confidence and activity is emerging. At the time of writing, the outlook is improving, and it appears that the shaky start to the year is being left behind as we progress toward 2018. This should be positive for suppliers of capital equipment and services, as financial decisions begin to move again and investment again receives sanction.
The increase in the national living wage, set to peak in 2020, is looming large in the food and drink industry. We are seeing schemes addressing this issue being pushed firmly up the investment agenda. Automation and rationalisation are being considered by many producers as a way to mitigate future increased wage costs, as well as protect against predicted labour shortages exacerbated by Brexit. Footprint studies are being undertaken by many, and organisations such as Tulip are already resorting to moving labour around the UK to service demand.
Brexit itself been cited in a few cases as the main reason for projects being cancelled or placed on hold, though feedback from industry players suggests the uncertainty surrounding the UK’s final arrangement with the EU is very high on the list of concerns. For example, big food retailers are assessing their current and future supply chains pre and post Brexit due to rising costs, which has delayed some projects.
The pipeline for project implementation for 2018 is so far looking much more positive, but early signs show this could lead to capacity problems among contractors as many projects progress in a similar timeframe.
Medium and larger engineering houses are seeing an increased level of tendering, with many being more selective as to which types of project they are undertaking. Many proposals were carried out in Q2/Q3 2017, but delays to project sanction have resulted in a large number of programme schedule changes.
High value investment is still going through the pipeline, with plenty of front end work being undertaken. However, contractors and equipment suppliers appear to have found 2017 mixed, with slow signoff of capex and a lack of implementation having an impact. The outlook for 2018 for these companies is however much improved as capex sanction has picked up significantly in Q3/Q4.
As manufacturers look to reduce overheads, rationalisation and consolidation are high on the agenda. Re-locations have also picked up. Major players such as Unilever and Britvic are examining HQ and production placement, with Unilever considering establishing a presence in the Netherlands. Nestle are looking at Poland, resulting in job losses in the UK as Blue Riband production is relocated.
Greencore are looking to transfer production away from Evercreech. Diageo are looking to Italy and the US as new potential production bases. Bernard Matthews have ceased chicken production with a view to rationalise production elsewhere.
Distilling, in particular gin, is still a buoyant area. Brewing and micro-brewing also remain areas of strong investment moving into 2018.
Automation is seen as a major area of opportunity in the food and drink industries due to labour issues and a conscious effort to reduce ongoing overheads.
Food to go represents a potential £6.1bn market over the next 5 years and we are seeing many project schemes entering the pipeline to capitalise on growing demand. Free-from remains strong, with sugar-free and low-sugar options brought further into focus by upcoming legislation. Another area of growth resulting from legislative changes is around packaging waste and environmental efficiency.
Some of the larger UK food sector and drink sector investment currently being tracked by Protel (data taken from our MyProtel project search engine):
For more information on any of the organisations, projects or trends covered, including key information required to target specific projects, please contact us.