Britain’s UK manufacturing industry has outperformed the recession and the stock market, according to a new report out by accountancy group PwC.
In spite of dire manufacturing PMI figures last week, where the benchmark CIPS/Markit PMI fell to a three-year low of 45.6, the report shows that the biggest manufacturers in the FTSE share index have trebled their share price since 2009.
As other sectors, including the financial sector, struggle to fight off the recession, PwC’s ‘From Crisis to Growth’ report shows that someone investing in UK Manufacturing Plcs – a selection of the bigger listed engineering firms – would have doubled their money over the past five years.
The report also found that in recession, companies in the sector tend to focus on eight key areas for survival including scenario planning, supply chains, R&D and focusing much more on the customer.
It also suggests that success will percolate to the supply base, but UK SMEs who service these big plcs who expand offshore will often have to follow them abroad to remain their suppliers.
The report includes financial analysis of these companies on measures such as share price, revenues, gross margins and EBITDA margins. Firms analysed include Senior plc, Renishaw, Berkshire-based advanced materials group, Morgan Crucible and Melrose, which acquires and invests in manufacturing businesses.
Clive Penwarden, a partner in the Industrial Manufacturing Group at PwC, said: ““We first looked at these companies in 2010 to see what strategies they were implementing to deal with the impact of the recession and found they weren’t just reducing their costs like many sectors in the UK were doing, they saw the financial crisis as an opportunity for growth – and that’s what they did.”
Gross margins for this group topped 35% in 2008 and Ebitda margins were about 18%, which fell to 16% in 2009 as the recession hit. But Ebitda for these firms shot back up to 21% last year and gross margins stood at 37% – higher than in 2007. PwC attributes the strong performance to the tight adoption of the eight ‘back to basics’ policies.
“The businesses we looked at restructured, re-strategised, became agile and flexible and looked to emerging markets for future growth,” said Penwarden. “The strategies… have [also] proven to be sustainable. With revenues showing an average year on year growth of 9% and 16% in FY10 and FY11, and 2012 looking similarly positive, perhaps other sectors should be learning from their success.”
In export growth to emerging markets the UK was slow compared with its peers, but a strategy for emerging markets was a common theme with the top performers. “The big companies in this group have all gone after emerging markets, either with factories, joint ventures or acquisitions,” said Penwarden. “With no growth in Europe, the decision to do this three or more years ago has been crucial to their performance.”
The success of British engineering plcs provides both a risk and opportunity for their UK suppliers, where suppliers should follow big customers who move offshore when the time is right, says Penwarden.
“If the suppliers don’t follow and UK manufacturers start to build up a local supply base that is when they will get doubly hit. Their UK share can get eroded as the manufacturers send goods they make abroad back home, plus they don’t capture any of the growing global demand.
“SMEs will be the next lot to head abroad, and they need to start thinking now and making those plans on where to focus.”
Andrew Sentance, senior economist at PwC, added: “This is a great time of opportunity for manufacturers…. We have many successful, highly innovative and well managed manufacturing companies here in the UK – though perhaps just not enough of them.”