NEWS


UK MANUFACTURERS ARE SUFFERING A TRIPLE WHAMMY OF LOWER SALES, SHARPLY LOWER PROFITS, AND A PAINFUL CASH SQUEEZE


INSIDER PRO | UK MANUFACTURING BAROMETER | EDITION 1 INSIDER PRO | UK MANUFACTURING BAROMETER | EDITION 1 INSIDER PRO | UK MANUFACTURING BAROMETER | EDITION 1


Operating Profit Margin - by sector 12


Revenues have grown, but profits have not 125 120 115 110 105 100 95 90 85 80


2014/15 2015/16 Revenues – indexed 2016/17 Operating Profit - indexed 2017/18 2018/19 2019/20


Operating Profit Margin - by sector 12


10 8 6 4 2 0


10 8 6 4 2 0


2014/15 2019/20 2014/15 2019/20


Revenues - 2019/20


Operating Profit Smaller producers have seen operating profit fall, but larger ones have shown growth


Chemicals, Petroleum, Rubber & Plastic


Food & Tobacco Manufacturing


Industrial, Electric & Electronic Machinery


Metals & Metal Products Transport Manufacturing


Miscellaneous Manufacturing


Wood, Furniture & Paper Manufacturing


Textiles & Clothing Manufacturing


Building Materials & Glass


Computer Hardware


Operating Profit Smaller producers have seen operating profit fall, but larger ones have shown growth


120 115 110 105 100 95 90 85 80


120 115 110 105 100 95 90 85 80


The analysis was made of the accounts of 1,457 small and medium-sized manufacturers employing 2.7m, around a quarter of Britain’s manufacturing workforce. The research from specialist consultancy Insider Pro reveals several years of good revenue growth until 2018/19, driven by a combination of higher volumes and gently rising prices. This year (2020/21) revenues are set to fall by a tenth. But even before the pandemic struck and Brexit began to bite, sales growth in 2019/20 stalled across all major sectors. Companies made sales of £214.8bn, unchanged year-on-year. The picture has worsened markedly since. Despite recovering some lost ground from its low point during Lockdown One, industrial production is still well below trend. It is calculated that disruption caused by the pandemic and, more recently by Britain’s departure from the EU customs union and Single Market, will hit sales by a tenth in the year to March 2021, knocking a staggering £21.5bn off small and medium manufacturer top lines. Unfortunately, even before the 2019/20


8 2014/15 2015/16 Larger Producers – indexed 2014/15 2015/16


slowdown and the 2020/21 calamity, higher sales were not translating into rising profits. Collectively, the UK’s small and medium-sized manufacturers booked £12.6bn in operating profit in 2019/20 (before the impact of the pandemic was felt), £200m lower than in 2014/15. This means that all the £38bn of additional sales generated no additional profit. Most of the pressure came from smaller manufacturers, which have suffered a sustained margin squeeze. Across almost every sector, smaller manufacturers performed more poorly than their larger counterparts. Machinery, metals, and textile manufacturers were among those that experienced the greatest margin squeeze, while food & tobacco and chemicals & petroleum held their own. This year manufacturing pre-tax profits will more than halve to £6.5bn. It is expected operating profits will at least halve this year (2020/21), falling by £6.3bn. Pre-tax profits are set to drop by £7bn to £6.5bn.


10 10 Larger Producers – indexed 2016/17 2017/18 Smaller Producers – indexed 2016/17 2017/18


In addition to lower sales and much tighter margins, companies are also suffering


20 / WELDING WORLD MAGAZINE - ISSUE 02 - APRIL 2021


a cash squeeze. The big problem is on stock, raw materials and components, which are growing unsustainably faster than sales. In 2019/20, manufacturers held inventories worth two months (61 days) of production, a full week more than five years before. Every sector except textiles held more stock than can be justified by rising sales. The average manufacturer held £19.3m of stock at any given moment in 2019/20, £4.2m more than 2016/17, an increase of 28%. Elsewhere in the vital cash cycle, companies are collecting payment from customers more quickly, but they are paying suppliers sooner too – this means more working capital is being tied up here also. Smaller firms are offering more generous terms than larger ones. The analysis shows the problem has worsened further in 2020/21, estimating that manufacturers have had to find an additional £2.5bn in working capital, even as their sales and profits have fallen. This is equivalent to £1.7m per company, with the impact disproportionately larger for smaller companies. ■


Smaller Producers – indexed 2018/19 2019/20 2018/19 2019/20


Chemicals, Petroleum, Rubber & Plastic Computer Hardware


Chemicals, Petroleum, Rubber & Plastic Computer Hardware


Food & Tobacco Manufacturing Transport Manufacturing


Food & Tobacco Manufacturing Transport Manufacturing


Wood, Furniture & Paper Manufacturing Industrial, Electric & Electronic Machinery Miscellaneous Manufacturing Metals & Metal Products Building Materials & Glass


Wood, Furniture & Paper Manufacturing Industrial, Electric & Electronic Machinery Miscellaneous Manufacturing Metals & Metal Products Building Materials & Glass


Textiles & Clothing Manufacturing Textiles & Clothing Manufacturing All All


Larger producers Smaller producers


Larger producers Smaller producers


Percent


Percent


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