•  Chris Chambers Stuart Apperley 

    Manufacturing – Sector focus

    Author: Chris Chambers and Stuart Apperley, Relationship Directors
    Publication date: 01.08.2010

     

    Manufacturing

    Gradual return to economic health brings new challenges for UK manufacturers.

     
    The first half of 2010 has shown encouraging signs of recovery. The pace of expansion in UK manufacturing has been strong throughout, although Manufacturing PMI fell to 54.3 in August, the lowest level since November last year: This is still above the 50 mark, which separates growth from contraction in activity. But confidence has been clouded by wider concerns on the sustainability of the global recovery and, in particular, the economic outlook in the eurozone, the UK’s largest trading partner/export market.

     

     With many parts of the manufacturing sector affected by the global downturn — whereby a number of end markets suffered significant contraction, leading to severe cuts in production as corporates and governments undertook aggressive de-stocking to preserve cash — businesses are now seeking ways to exploit market recovery.

     
    Impact of government policy still unclear

    It’s relatively early days for the UK’s new coalition government and too soon to tell what impact policy will have on the manufacturing sector. However, the chancellor’s announcement that he intends to reduce corporation tax over five years, plus confirmation that he is no longer planning to scrap research and development tax credits, are surely welcome moves.

    Although interest rates are forecast to remain low throughout this year, we expect to see some growth in the UK economy, though this is likely to be moderate and constrained by continuing readjustments. The potential payback, however, may come in the shape of a reduction in capital allowances.

    The relative strength or weakness of sterling is another important issue for the manufacturing community. A weaker pound is certainly beneficial for exporters, but the UK’s biggest trading partner is the European Union, and the fact that the eurozone is struggling may have an impact on demand.


    Shift focus to capitalise on emerging opportunities

    As the recovery takes shape, businesses need to give greater consideration to end markets. The key challenge for manufacturers that have survived the recession is to switch from a strategy of managing the balance sheet to one centred on growth and investment. It is those firms that are already focused on, or are able to shift their focus to more resilient sector or geographical end markets that will be best placed to take advantage of the new opportunities.

     
    Companies that have planned for different contingencies and maintained open and frank conversations through tough times, as well as good relationships with key stakeholders — buyers, suppliers and financial partners — are now in a strong position to seize on new prospects. Manufacturers led by strong management teams that have continued to look closely at their business plans and have been willing to adapt to changing conditions will continue to lead the sector.

    The search for sustained recovery goes on

    During the next few months, through our own research and also by remaining close to clients in our role as a key financial partner, we will be looking for evidence of sustained recovery in end markets. Economic recovery may enable management to have the confidence to make long-term investment decisions — be they organic capital investment or M&A related. We will seek to act as a sounding board, giving honest, unbiased feedback to clients, and also to challenge them on the need to maintain the disciplines (strong focus on cash/working capital, inventory controls, staying close to customers, supply chain management and cost control) that were put in place during 2008/09.

    Our focus will remain on supporting key manufacturing customers. We will work with them to:

    • maintain their liquidity in a stressed environment
    • develop creative supply chain finance solutions
    • offer timely and appropriate advice
    • expand manufacturers’ access to bank, securitisation and capital markets financing

     

    Finally, to add value and to secure our emerging reputation as a significant and reliable partner of key industry players, Lloyds will venture outside the home market to engage with selected global companies that have good product variety and balance sheet support.

     
    Source: This article was first published in Lloyds Banking Group - Perspective Magazine Edition 2.
     

2/23/2018 6:22:06 AM