FRP Advisory - Manufacturing: under the microscope

In this publication, FRP Advisory Restructuring Advisory Partner, Tony Wright explore the headwinds the manufacturing sector is facing, and the key factors that manufacturers will need to keep in mind as they brace for the coming months.

Manufacturing: under the microscope

Analysing the challenges and opportunities that will shape the sector

If the UK is to be serious about growth and maintain the view of itself as a manufacturing powerhouse, that means being brave enough to invest in plant and machinery, buildings, skills, R&D and more. Luke Wilson Restructuring Advisory

To better understand the outlook of the industry, we spoke to 100 senior decision makers working in heavy manufacturing businesses ranging from food and paper production to chemicals and steel. While the economic picture continues to change, they paint a picture of an industry in flux.



Manufacturing: under the microscope

Entrepreneurial outlook

The year ahead

When we asked manufacturers about their prospects for the next 12 months, more than three in five (63%) said they were confident that they could grow their revenues. That’s heartening, though it does come after another tough year for businesses across the sector. While total sales were up by 9% to £400.8 billion in 2021, that was still down on the pre-pandemic peak of £402.2 billion 1 . Staying with the pandemic, 99% of the manufacturers we surveyed accessed government support during the crisis, whether through the Coronavirus Business Interruption Loan Scheme, Coronavirus Large Business Interruption Loan Scheme or the Bounce Back Loan Scheme. While these interventions were more than welcome, many firms now find themselves in a situation where they must repay their loans at a time when rising input costs are putting ever more pressure on cash flows. Though a third of firms (33%) told us they were repaying their liabilities on schedule as planned, more than half (54%) had been forced to negotiate revised terms with lenders. The government, which guarantees these facilities, has told lenders they can extend the repayment period from six years to ten for struggling businesses, and there can be other measures they can take at their discretion, like offering a six-month repayment holiday. However, at a time when interest rates have risen significantly and securing funding has become more expensive, one in ten (11%) manufacturers told us they were already unable to repay their COVID-19 funding.

For many years, the UK’s manufacturing sector was a shining example of a dynamic, productive and innovative industry that outperformed the wider economy and its international competitors. But since the financial crisis of 2008, performance has been more subdued – a scenario only exacerbated by the significant decline in sales and orders caused by the pandemic. Tens of thousands of manufacturing jobs were lost, and hundreds of businesses went to the wall. Since then, inflation has hit double digits for the first time since the 1980s, interest rates are on the rise, energy bills are at unprecedented levels and the cost-of-living crisis is squeezing consumer demand while driving up wage costs at a time of post-Brexit and COVID-related labour shortages. These economic challenges all act as barriers to innovation, restricting investment in the novel technologies that could boost productivity and profitability. However, if the UK is to be serious about growth and maintain the view of itself as a manufacturing powerhouse, that means being brave enough to invest in plant and machinery, buildings, skills, R&D and more. With this kind of entrepreneurial outlook, and with the backing of a government administration committed to innovation and R&D, manufacturers can lead the way in helping to decarbonise the economy, drive up exports and level up the regions.

Overcoming uncertainty

We have already seen good progress in some key manufacturing subsectors, such as fast-moving consumer goods and renewables, and the road to net zero can bring about a new age of opportunity in sustainable manufacturing. While we recognise many manufacturers will currently be in firefighting mode, we’d like to share our insights and advice to support their survival. Ultimately, we need to get manufacturing productivity and growth back on track. British manufacturers still enjoy an extraordinary reputation for quality, both at home and around the world. With a strong base for growth and a positive attitude to investment, the industry can lead on world-beating innovation again.

Getting in touch

Luke Wilson Senior Manager Restructuring Advisory London +44 (0)20 3005 4263


Manufacturing: under the microscope

Danger of default

Shouldering the burden

When firms default on these facilities the lender must follow its usual recovery process, but there are concerns that they may be quicker to foreclose than usual because they can claim up to 80% of all amounts due from the government. So, any business that can’t meet its scheduled repayments would be well advised to seek specialist advice and engage with their lender at the earliest opportunity. Defaulting could damage your credit rating or if a personal guarantee was given, the business owner or directors could be held personally liable. In the worst case, it could lead to insolvency. Despite this, it would seem that most manufacturers do have stakeholder support at this time. The vast majority (93%) said they expect to seek an increase in facilities provided by existing shareholders and/or lenders during the next 12 months. While a fifth (20%) will turn to shareholders for support, twice as many (39%) will approach lenders for help and a third (33%) will ask both lenders and shareholders for extra assistance asking for facilities to be increased by an average of 21%.

This comes after 99% of firms said they had taken steps in the past 12 months to preserve or improve their cash position, including deferring VAT and tax payments (36%) and making redundancies (33%) – with those reducing their workforces cutting one in four jobs on average. Considering that there are around 7,300 manufacturing businesses in the UK with more than 50 employees 2 , this would represent the loss of around 168,000 jobs in total if applied across the board. Further actions included changes to employees’ contracts or working hours (32%), making deals with landlords or not paying rent (30%), negotiating extended terms with suppliers (30%), putting up prices (25%) and not paying pension contributions (25%). Those that had been forced to pass cost increases on to customers had raised their prices by an average 26% - more than double the rate of inflation at the time of writing. Given the context of rising energy costs, import tariffs and material shortages, sometimes putting up prices is unavoidable. And, while some suppliers will have more leverage than others, it’s important to communicate why you’re doing this, and if you can, to give advance notice, in order to maintain good customer relationships.

What steps have you taken in the past 12 months to preserve or improve your cash position?





VAT and tax deferrals

Permanent reduction in headcount

Changes in contracts/ working hours

Compromises/ non-payment of rent



25% 1%

Extended terms with suppliers

Increased prices for customers/distributors

Non-payment of pension contributions

No steps taken

*Results based on responses from 100 senior decision makers from heavy manufacturing businesses, who each selected all steps that applied to their business.


Three crucial considerations

The chemicals sector is a bellwether for the manufacturing industry and the top three issues for us continue to be energy, raw materials and people.

There is a view that this weakness is going to endure until at least the middle of 2023. Our challenge now is threefold; retaining people, recruiting people and rewarding people. Retaining people means paying them more, and the average salary increase over the past 12 months has been about 5% to 6%, though many manufacturers have made one-off cost-of-living payments too. Retention is another issue because we have a relatively mature workforce and are facing a retirement cliff. The industry is well paid, with lots of opportunities for apprentices and graduates, but we need to tell our story better, and there’s certainly more we can do to improve diversity.

Certain parts of our industry are very exposed to energy volatility right now, even with the Energy Bill Relief Scheme. There’s a review going on right now to determine vulnerability and therefore eligibility for support after the end of March 2023, but I worry that the focus will be on domestic customers, at the expense of business. Turning to raw materials, our members had 19 consecutive months where input prices were rising faster than output prices. Simply put, manufacturers don’t feel they can pass on cost increases to customers at a time when demand is so weak.

Stephen Elliott Chief Executive at Chemical Industries Association


Challenges for the sector

While the challenges have been significant, UK manufacturers have been enormously resilient and adaptable following a wave of macroeconomic and geopolitical issues.

a severe loss of revenue, to those who experienced a COVID bounce, both of which are impacting working capital requirements. These challenges have come alongside an increasingly critical ESG agenda. Capital structure and debt facilities have and will always remain a key ingredient to success, but the talent from C-suite to ‘on the tools’ production will remain critical to the long-term success of the sector within the UK, which remains the ninth largest manufacturing nation globally. Shortening supply chains, consolidation and vertical M&A may all feature more frequently in the 12-months ahead. George May Managing Director - Asset Based Lending at Close Brothers

Many of these challenges in isolation will have resulted in significant operational, working capital and profitability issues, but the collective impact has been enough to even challenge the top tier operators. We can look back on decades of support to the manufacturing sector across our Asset Based Lending and Asset Finance businesses, but it is difficult to compare and contrast against equivalent headwinds, from supply chain disruption and soaring input costs, to rising energy and interest rates, and increased leverage, following the seismic debt support from CBILS and other related loans.

We’ve also seen COVID-19 nuances; ranging from suffering


Manufacturing: under the microscope

Under pressure

Together, these factors will impact manufacturers’ margins, push cost increases to customers, lengthen lead times and delay new product development. And more than a quarter (28%) say they aren’t confident that all the businesses in their supply chain will be trading in a year’s time. In response, firms will be looking to build up inventory, while also exploring alternative manufacturing solutions and seeking new suppliers who are perhaps closer to home. One quirk to emerge from this instability is that UK manufacturers are evenly split over the impact of the global shortage of microchips; a third say it’s having a negative impact, a third say the impact is positive, whilst a third haven’t experienced any impact. At the same time, more than half of the manufacturers we spoke to said their own place in the supply chain could be in jeopardy. Indeed, 53% are expecting to come under pressure from creditors in the coming year, which could include winding up petitions or County Court Judgements. With this in mind, it’s vital that manufacturers are on top of their forecasting and open and honest with all stakeholders about the challenges they face. We suggest using a rolling 13-week cashflow forecast so you can continually monitor and manage money in and out of the business.

The war in Ukraine and China’s zero-COVID policy haven’t helped manufacturers over the past 12 months. However, in reality, they have served to compound longstanding issues in global supply chains. As lockdowns around the world ended, a rapid uptick in demand was hamstrung by limited supply and logistics capacity. It threw into sharp relief how a flood in Malaysia, for example, could cause a production line in Munich to grind to a halt. Brexit has also introduced new administrative obligations that importers and exporters are still working through. And, of course, energy bills and interest rates continue to create uncertainty that’s affecting decisions about everything from investment to employment.

Risky business

It’s no great surprise that manufacturers told us the top five risks to their business over the next 12 months are the availability of materials (33%), international trade complexity (29%), increased energy costs (28%), increased materials costs (27%) and increased import/shipping costs (26%).

What are the biggest risks to your business in the next 12 months?







Availability of materials International trade complexity Increased energy costs Increased materials costs Increased import/shipping costs Availability of labour New COVID variants Supply chain delays/uncertainty Increased wage costs

*Results based on responses from 100 senior decision makers from heavy manufacturing businesses, who each selected all steps that applied to their business. 7

A perfect storm

Manufacturers have overcome an incredible number of political and economic challenges in recent years, and my gut tells me that most will weather the current storm too.

However, there’s a significant number of businesses that are still struggling with massively increased costs, higher stock levels than they would like and reduced demand. My concern is that there will be more business failures than we saw during the financial crisis and the pandemic.

Peter Snaith Partner and Head of Manufacturing Sector Group at Womble Bond Dickinson


Manufacturing: under the microscope

Seeking skills

They reported a spread of views, from capping the retail cost of energy for businesses (39%), a long-term loan scheme, similar to that introduced for domestic customers (37%), a reduction in the rate of fuel duty (34%) and a reduction in the 20% rate of VAT on energy (33%). A third (33%) also argued for increased or new subsidies for self-generation. There’s certainly a strong argument for investing in generating clean renewable energy, which can help manufacturers become more energy independent and protect them from future price shocks. At the same time, it boosts a business’ green credentials and can be a great step towards Net Zero. However, in the current environment, it’s clear that government is more likely to prioritise measures that reduce public spending. How confident would you have been about your ability to continue trading for the next six months without the introduction of the Energy Bill Relief Scheme?

Another looming challenge is exposed by the significant number of manufacturers who flagged the availability of labour (23%) and increased wage costs (22%). This is a red flag; as a shortage of technical skills means hiring is becoming increasingly challenging for manufacturers, holding back their potential. The sector has historically struggled to attract the kind of young and diverse talent that can drive its future success. Clearly, there’s an opportunity here to increase awareness of the myriad opportunities in the sector and recruit people from more diverse backgrounds.


Manufacturing can be an energy intensive process.

That makes achieving Net Zero by 2050 a particular challenge, but an opportunity too. And there are other deadlines looming; the country is committed to cutting carbon by 68% by 2030 and 78% by 2035, compared to 1990 levels. Clearly, there’s a long way to go; the manufacturing and construction industry is the third most polluting industry in the UK and was responsible for 18% of UK greenhouse gas emissions in 2020. We are making progress though; emissions from the industry are already down 17% on where they were five years ago 3 . With the sustainability story being overtaken by events during 2022, we have decided to shine a spotlight on the energy crisis; first asking manufacturers whether they would have been able to continue trading in the short term without the introduction of the Energy Bill Relief Scheme, which will apply a discount to energy costs until April 2023. While two thirds (68%) think they would have survived, a fifth (20%) did not. With around 244,000 manufacturing businesses in the UK 4 , that’s a potential 48,000 firms that could have gone to the wall without government help. A similar number (18%) say they aren’t confident of continuing to trade through the next 12 months without an extension of the Energy Bill Relief Scheme beyond March 2023. And the same proportion (20%) said they didn’t have sufficient headroom in their current financial model to absorb a further rise in energy costs should the Energy Bill Relief Scheme not be extended. All this suggests that there is a cohort of manufacturers for which the energy price crisis poses a genuinely existential threat. When we asked manufacturers how the government could best help them with their energy costs beyond 31 March 2023, there was no silver bullet to solve the issue.

3% Not applicable

16% Not very 4% Not at all

9% Not confident/ unconfident

38% Very

30% Somewhat

*Results based on responses from 100 senior decision makers from heavy manufacturing businesses. 9

Manufacturing: under the microscope

COVID and Brexit coming home to roost

We can take heart from the Chancellor’s pledge to back advanced manufacturing as one of the UK’s five key growth industries, alongside digital technology, life sciences, green industries and financial services. He has announced a taskforce led by the Chief Scientific Adviser Sir Patrick Vallance, to investigate how we could change regulation to better support the introduction of new emerging technologies. This could be crucial to solving the sector’s productivity problem, which we must address if we are to continue to compete internationally. But when I read through the results of this report, I’m encouraged by the entrepreneurial outlook of our manufacturing community. They are realistic about the challenges they face, and they are taking appropriate action. And they are resilient, though that is being severely tested. At times like these, manufacturers need to be on the front foot, proactively reviewing their operations, costs and pricing, and staying in close contact with all stakeholders. I’m confident that the vast majority will make it through this period and will emerge fitter and stronger. I hope this report helps shine a light on some of the most pressing issues for manufacturers. We’re here to help and I’m happy to speak with you if you have any questions.

Even before interest rates started going up, we were speaking with a number of businesses who were struggling to access funding because they had a CBILS in place. Now businesses are coming to the end of their terms and repayments are due, their options are becoming more limited. Added to this, businesses are feeling the effects of Brexit. Before Brexit, it was much easier to do business with our nearest neighbours in the EU. But in an environment where margins are so tight, smaller businesses just don’t have the resources to employ someone to do all the new paperwork. We have to find a way to empower businesses and take that friction out of the system.

Energy anxiety

Energy costs and uncertainty over government support are also causing firms to freeze investment in renewables at a time when the business case for decarbonisation is stronger than ever. If you look at the return on capital and the savings which will be made, it still makes sense for firms to bite the bullet if they can afford it. It will provide a more reliable source of energy, improve your ESG rating and increase access to finance.

Getting in touch

Tony Wright Partner Restructuring Advisory London +44 (0)20 3005 4295


There’s no doubt that manufacturers are under pressure. The reasons for that are well understood: inflated materials costs, a shortage of workers that is pushing up wage bills and declining demand from consumers. I’m sure we all appreciate the support the sector received during the pandemic, which acted as a lifeline for many firms. But that help has now come to an abrupt end as we head into a recession that is forecast to last over a year and push half a million people into unemployment. It could be that the worst is yet to come for many manufacturers.

Restructuring Advisory

Notes 1’%20sales%20by%20product%3A%202021%20 results&text=The%20total%20value%20of%20UK,total%20of%20%C2%A3402.2%20billion. 2 by%20enterprise%20size&text=In%202021%2C%20there%20were%20approximately,employed%20500%20or%20more%20people. 3 4


At times like these, manufactures need to be on the front foot, proactively reviewing their operations, costs and pricing, and staying in close contact with all stakeholders. Tony Wright Restructuring Advisory


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December 2022

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