Report
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 luke.wilson@frpadvisory.com
frpadvisory.com
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