FRP Advisory - Manufacturing: under the microscope

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 tony.wright@frpadvisory.com

Conclusion

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 https://www.ons.gov.uk/businessindustryandtrade/manufacturingandproductionindustry#:~:text=UK%20manufacturers’%20sales%20by%20product%3A%202021%20 results&text=The%20total%20value%20of%20UK,total%20of%20%C2%A3402.2%20billion. 2 https://www.statista.com/statistics/677081/uk-manufacturing-businesses-by-size/#:~:text=Number%20of%20manufacturing%20businesses%20UK%202022%2C%20 by%20enterprise%20size&text=In%202021%2C%20there%20were%20approximately,employed%20500%20or%20more%20people. 3 https://www.makeuk.org/insights/reports/manufacturing-sector-net-zero-roadmap 4 https://eandt.theiet.org/content/articles/2022/10/uk-manufacturing-sector-shrinks-by-near-10-per-cent-figures-show/

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