Industry Focus Renewable Energy
AT THE EDGE OF THE TECHNOLOGICAL FRONTIER
Julian Hobbs, sales director, Siemens Financial Services, explains that by deploying energy efficient technologies, the UK can remain at the forefront of high end manufacturing
T
he UK manufacturing sector has received a series of recent positive statistics and news. The Markit/CIPS purchasing managers’ index (PMI) in August recorded the sector’s strongest growth in activity since February 2011, with output and new orders rising at their fastest rate for 19 years. The upbeat sentiment is fur- ther reinforced by the Confederation of British Industry’s industrial trends survey for September, according to which, 33% of the 398 surveyed compa- nies expect to raise output in the next three months - the highest reading for the optimism index since March 1995. These statistics provide uplifting assurance that UK manufacturing is steadily regaining a foothold in its future development. Worth more than £140bn each year to the UK economy, the sector has built competitive head- room in high value manufacturing, especially in the automotive, aerospace and pharmaceutical sectors, for which it still enjoys world class reputation. As the economic recovery begins to gather pace, UK manufacturers need to leverage competitive edge while harnessing technological innovation to maintain their leading market posi- tions on the global stage.
Opportunity knocks
There are significant opportunities to be seized, for example, environmental issues, which are leading to market demand for innovative changes such as the redesign of aircraft wings for lower environmental impact or the accommo- dation of non-fossil fuel alternatives in the auto market. These emerging oppor- tunities are, however, only possible if supported by access to advanced equip- ment and technology. When viewed in the context of rising electricity prices, the importance of deploying energy efficient technologies is seen to be particularly critical. In 2012, the average UK indus-
trial electricity price including taxes were the fourth highest in the G7 coun- tries. For energy intensive industries such as chemicals, steel, cement and alu- minium, the inexorable rise in energy prices is cutting into profits, impairing businesses’ competitiveness. There is consequently, an imperative for UK manufacturers to equip them- selves with the latest technology and up to date equipment, especially if they are to remain at the forefront of high end manufacturing. Yet the tightened credit environment following the financial crisis also means that companies nowa- days have more limited access to avail- able funding for equipment acquisition and technology upgrades. So the need for working capital optimisation has never been greater. The answer to this challenge, however, is not to give up on essential investments, but to deploy intelligent financing methods to achieve competitive advantage.
Asset finance techniques are becom- ing an increasingly vital tool in helping manufacturers achieve just that. Siemens research has shown that UK industry is currently tying up (or freezing) some £2.17bn a year in outright equipment purchases, capital that could be freed for frontline development if leasing and renting were more widely employed. Based on businesses’ requirements and profile, these tailored financing solutions can combine equipment, installation, service, maintenance, training and upgrades into a single financing package. Monthly lease payments are aligned with the expected benefits (savings/productiv- ity) enabled by the new equipment, allowing companies access to the latest technologies without having to commit scarce capital or use traditional lines of credit. Such financial arrangements are particularly valuable in enabling invest- ments in low energy technology alterna- tives where payments are at least equal to, or lower than, the energy savings,
Automation NOVEMBER/DECEMBER 2013
Above: Julian Hobbs, sales director, Siemens Financial Services
Below: environmental issues are leading to market demand for innovative changes such as the redesign of aircraft wings for lower environmental impact or the accommodation of non-fossil fuel alternatives in the auto market
resulting in zero-net-cost investments. Even when a project cannot completely offset the equipment upgrade with energy efficiency cost savings, the financing arrangement can nevertheless subsidise the larger part of the upgrade cost. In the manufacturing sector, this is often highly attractive as up to date equipment may not only lower energy costs, but also boost productivity and extend manufacturing capability, gener- ating more revenue and margin. Key influencers in the financing market for industrial equipment are spe- cialist financiers that often themselves have a technology background. Their knowledge allows them to more accu- rately access the role that all types of equipment will play in the client busi- ness, along with the robustness of each client’s business plans, payback models, etc. They are therefore more inclined and more able to craft lease arrangements that fit the end user’s particular circum- stances and cash flow needs.
Summary
Manufacturing represents ten percent of UK GDP. With the many ongoing discussions about rebalancing the British economy from finance to man- ufacturing, its strategic importance in our economic mix is undisputable. It is true that British manufacturers cannot compete with low wage coun- tries in pricing - their strength lies in highly specialised and sophisticated manufacturing. To defend this unique position, British manufacturers must show a firm commitment to investing in pioneering technology that can translate into increased productivity and efficiency, but more importantly, they must do so in a way that is both financially astute and sustainable.
Siemens Financial Services
https://finance.siemens.com T: 01753 434 000
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