Grappling with Investment Decisions

It is difficult to ignore the uncertainty that is Brexit, but the positive climate for making bold investment decisions is hard to deny. Reduction in corporation tax rates to 17% from April 2020, increased Annual Investment Allowance to £1m until December 2020 and the improved availability of cash from the banks, all provide a healthy environment for manufacturing and engineering companies to make key decisions about investment, structure, acquisitions and productivity. With additional cash resources, investment can be made to expand existing manufacturing capacity, improve operational productivity through technology by grasping the digital world and capturing new market opportunities.

Manufacturing in the UK is going through a rough patch now, particularly in the automotive sector, with the closure of the Honda plant in Swindon and the Ford engine plant in Bridgend. Time will tell how these regions cope with the flood of labour on to the market place and how this cascades down into the supply chain, providing a stern test of will and determination. However, for manufacturing and engineering businesses in these areas, there needs to be opportunities with a skilled workforce becoming available, as production winds down and opportunities emerging for new businesses to replace those that are no longer required.

All this creates an environment where key decision makers in a business are faced with difficult choices about how to respond. Is a focus on modernising equipment, updating IT infrastructure and shifting into more digital manufacturing and supply chain management the right one, or is investing in the workforce to fill the skill gaps that exist priority number one? Alongside these are looking at expansion through acquisition or merger, or returning wealth to shareholders.

Whatever is chosen needs to be well thought through and strategic. It is unlikely that any one choice will be successful if made in isolation. Business owners, managing directors, finance directors and operations directors all have overlapping considerations that need to be aligned with strategic longer-term objectives:

  • Has the increase in available cash from lower tax rates and investment allowances been quantified?
  • What is the ability of the business to raise new finance for investment?
  • How should capital investment be prioritised, accelerated or increased?
  • Are suppliers, competitors and customers already making moves?
  • Is the acquisition of a competitor, or supplier now making more commercial sense, or is there an opportunity to diversify?
  • What are the expectations of the business owners and investors?

Key decisions made, or indeed avoided now, will have a significant impact on what the next five years will look like and the ability of manufacturing and engineering businesses to compete going forward in the post Brexit environment. Critical appraisal or re-appraisal of strategy is required to ensure that the best advantage is being taken of the favourable tax and investment backdrop that exists now to maximise the benefits going forward.

If you would like to discuss your investment decisions with us in more detail or if you would like to speak with a member of our team, please contact Hannah Farmborough or call on 0207 429 4147 to be put in contact with your local representative.

This article featured in issue 5 of our manufacturing and engineering newsletter series. Read the full newsletter here: The Engine – Issue 5