What our manufacturing clients said
This year MHA surveyed over 230 UK manufacturers and engineers to identify opinions in several core areas: their business as a whole including business confidence and growth, post Brexit, industry 4.0 and recruitment. We have then compared this to our financial data analysis.
Brexit strategy: 61% of businesses have a Brexit strategy in place, unsurprisingly this has almost doubled from last year (34%). Of those with a strategy in place 46% believe the impact will be limited, while 15% sense the potential impacts are extensive. 39% feel they cannot plan until they know more regarding negotiations
These results are not dissimilar to other surveys. Those showed a reluctance to spend money on Brexit plans due in part to uncertainty about the outcome. The reluctance was particularly marked amongst SME’s. Indeed the indications were that larger companies were much better prepared than smaller companies. As Brexit dates approached, planning became more of a priority but that seemed to be primarily concentrated in accumulating inventory to see businesses through in initial shortages.
Lloyds Bank Commercial Banking
What the financial data says: Businesses are holding cash, reducing debt and not investing in fixed assets. This could be their Brexit strategy.
82% of businesses stated they have evaluated risk in their supply chain. Those 18% who have not yet done so should seek advice to ensure protection of their supply chain as we leave the EU. We asked what steps are being taken to address the identified risks. 32% have sought relevant guarantees, 31% have made changes to their supply chain and 26% don’t feel there is anything that can be done to reduce risk. Only 11% of respondents have secured Authorised Economic Operator (AEO) status to reduce potential delays at customs. As changes to customs become imminent, we suggest business should consider AEO status.
Revenue Growth: The next 12 months
Overall 70% of businesses are expecting to see growth in the next 12 months (71% last year), of that 13% are expecting 10+% growth (a 4% increase on last year), leaving 30% anticipating flat or no growth, the same as predicted last year.
What the financial data says: Yes, revenue growth is apparent, but at the cost of reducing margins.
Main barriers to growth:
26% cited global economic conditions, 22% stated recruiting skilled staff and 19% had concerns around Brexit and future trading tariffs.
What the financial data analysis says: Yes, Brexit has had an impact on the financial strength and strategy of businesses.
Despite this uncertainty, 48% are still planning to make a significant capital investment in the next 12 months, though 52% are not planning to. Of those not investing, 39% put this down to Brexit uncertainty and 69% felt they invest as appropriate and have no foreseeable need.
What the financial data says: Early indicators for 2019 financial data show that businesses are starting to invest in fixed assets after years of not spending in this area.
Research and development
Research and Development (R&D) is defined as – ‘Investigative activities that a business chooses to conduct with the intention of making a discovery that can either lead to the development of new products or procedures, or to the improvement of existing products or procedures’.
Over the years R&D tax credits have been of huge benefit to the sector, yet a number of business still remain unaware of the reliefs available. We work with clients continuously to support them through the process to better understand qualifying activity.
Last year 89% of respondents invested in R&D. This is a 5% decrease and could be down to a number of issues the sector has faced, as outlined in the financial data.
Of those who invest, 48% had successfully applied for tax credits while 29% haven’t applied, 11% do not think they undertake relevant R&D and 5% are unaware of the tax credits. Not all activity will be eligible but many who have not claimed could probably do so and save their business thousands of pounds in the process.
When asked about R&D investment plans, 64% plan to invest a percentage of Turnover. Of those 64%, 25% plan to invest 1-2%, 23% less than 1% and 16% over 8%.
Looking at the location of main competitors, 43% stated their competition as the rest of the UK ( this is down from 58% last year). 21% felt competition was within their own region ( this is down from 39% last year), and 14% cited the Eurozone, this has reduced by over half from 39% last year.
Business strategy for 4.0 and Robotic Process Automation
32% have considered a business strategy for 4.0 and robotic process automation but decided it isn’t right for their business, whereas 29% have one in place and see these as a key part of their future. 26% stated a strategy for 4.0 and Robotic Process Automation (RPA) wasn’t practical due to lack of infrastructure (e.g. lack of 5G technology) with 13% stated a lack of financial backing to invest.
It is encouraging to see that 32% have a strategy for technology investment but more needs to be done to help those organisations who don’t believe the technology has a role in their business. Evidencing the opportunity and the return on investment through national programmes such as Made Smarter will help.
High Value Manufacturing, Catapult (HMV)
Thinking about environmental impact, we asked businesses if they had put measures in place to reduce the impact their business has on the environment in the future.
62% said they have with 33% of those saying it is the right thing to do and 29% who see this as a key approach to their business. Of the 38% who said no, 27% felt this was because changes cannot be made at the current stage while, 11% felt it was not a concern for their business.
It is encouraging that a large majority of companies have plans in place to lower their environmental impact. Reducing waste and increasing efficiency makes good financial sense, but companies are often reluctant to make the investments required. SMEs in particular have a very low awareness of the benefits of energy efficiency and in 2019 the Government conducted an investigation into the reasons for this. Various policy options are being considered to boost business energy efficiency, including green loans, energy efficiency auctions, and energy efficiency obligations. For companies looking for advice in this area, a good place to start would be the ‘SME guide to energy efficiency’ which was published in 2015 by the Department for Energy and Climate Change.
Institution of Mechanical Engineers
Case study: Dufaylite
Dufaylite has manufactured recycled paper honeycomb for 65 years and in recent years developed added value products for the construction, retail display and packaging markets. In each of our markets we are helping our customers to become more sustainable by helping them to replace any use of plastic, polystyrene, foam or PVC. Not only does our product make customers packaging more sustainable and easier to recycle it also help reduce disposal taxes. With our increasing demand we have invested heavily in our manufacturing operation to reduce energy use and improve efficiency to enable us to keep up with increasing demand. This has included designing and developing our own new manufacturing lines and working on lean principles. To do this we enlisted the help of the MTC, we have managed to deliverer our new manufacturing lines and we are achieving 300% increase in production speeds with product in a condition that no longer requires further processing.
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.