Profit and Loss – Manufacturing Sector Snapshot

Key highlights:

  • Revenue has grown year on year, although 2017 growth rates (11.2%) were higher than 2018 (4.1%).
  • As a revenue subsection, companies involved in the manufacture of machinery, motor and transport saw a decline in revenue between 2017 and 2018, falling from third to fourth in the hierarchy behind the growing revenues in the manufacture of coke, petroleum, chemicals and pharmaceuticals. All other subsections increased revenue.
  • Although gross profit has increased in sterling terms, it has fallen in % terms from 22.1% to 21.4% between 2016 and 2018.
  • This reduction in GP% margin has contributed to falling net profit (6.95% to 6.03%) and EBITDA (earnings before interest, tax, depreciation and amortisation) (10.8% to 9.4%) margins over the same period.
  • EBITDA per employee fell from £27k in 2016 to £25.4k in 2018. Although expected by some this has not been business as usual for the manufacturing sector. In fact initially we had a period in which manufacturing did better than much of the rest of the economy due partly to Brexit, more recently it has fared particularly poorly.
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The analysis indicates that an average manufacturing business through the start of 2019 would feel like they are working harder for marginally less returns.

The picture is not so clear from a Brexit perspective. Since the referendum mid-2016, all profit margin measures have contracted, However, in the year following the referendum (2017), revenue increased significantly higher than the previous and following years.

Thoughts from the experts

The big picture for UK Manufacturing over the past few years is that we had a period during 2017 when it outperformed the economy as a whole, then in 2018 and 2019 it slowed sharply and underperformed. In 2017 growth was boosted by the big competiveness gain from sterling’s depreciation and by an acceleration in global activity. In 2018 the sterling boost began to fade and also global growth slowed. One key cause of the latter is the impact of international trade tensions particular between the US and China.

Fears of this seems to have hit business confidence and so led to a slowdown in business investment and hence in the demand for capital goods. This brought about a global slump in manufacturing. One recent piece of good news is that a partial trade deal seems to been agreed between the US and China signed on 15th January. This holds out hopes that 2020 may be a better year for global manufacturing.

In the UK, investment intentions have additionally been hit by Brexit slowdown so here the slump has been particularly marked.

Rhys Herbert
Lloyds Bank Commercial Banking

The 2019 General Election result, with the Conservatives winning an overall majority and a swathe of seats across the North of England, may boost certain manufacturing sectors in the coming years. In January 2020, the Chancellor of the Exchequer Sajid Javid indicated that he wants to ‘level up’ the productivity of the rest of the country with South East England. Up to £80 billion will be made available to spend on infrastructure projects.

Matt Rooney
Institution of Mechanical Engineers

This article comes from our latest Manufacturing & Engineering Survey Report, now in its eighth year, is a go-to report when it comes to understanding the sector, its opportunities and challenges. We benchmark SMEs across the UK to paint a national picture of the Manufacturing and Engineering sector.

Click here to read a copy of the full report.