Manufacturing Barometer points the way to recovery for UK sector
The UK’s latest Manufacturing Barometer reveals a more upbeat picture as the sector begins to emerge from lockdown, but as the national study notes, there is still a long way to go with challenging economic times ahead
The Manufacturing Barometer, the largest survey of SME manufacturers in England, shows that the sector is bouncing back from the worst effects of COVID-19 – with a degree of increased optimism around turnover, profits, jobs and investment.
The previous report, surveyed in April as the coronavirus crisis intensified, showed plummeting sales and production volumes, and the probability of deep job cuts throughout the sector, including businesses connected to the confectionery and bakery sectors.
Three months on, the latest report reveals that while the key indicators remain in “negative territory”, manufacturers are slightly more optimistic about their prospects over the short and medium term. However, it is clear there are still difficult times ahead for the manufacturing sector.
Conducted by SWMAS (South West Manufacturing Advisory Service) and the Manufacturing Growth Programme (MGP), the report reveals that over three quarters of firms (76%) saw sales drop in the last six months, with almost half (48%) still predicting sales to decrease between now and the end of the year. More encouragingly though, 40% of those questioned are expecting future sales to increase, which is a massive improvement on the 9% who predicted this back in April.
Over a third of respondents (39%) describe their current status as static or growing, with some businesses reporting very little change since the COVID-19 crisis, and others experiencing an increase in product demand. However, others have seen their customer base almost vanish overnight, and 59% of respondents describe their business’ current status as “surviving” or “recovering”, which shows the majority of SME manufacturers are still facing significant challenges.
In April, only 16% of respondents thought that the government support on offer was sufficient to survive the crisis. This survey confirms that the same percentage (16%) have already taken additional steps, above and beyond the support from government, to protect their cashflow, and a further 29% identify a need for more financial help going forward.
Although 80% of manufacturers have utilised the Furlough scheme to retain employees, it is concerning that more than a quarter have already been forced to make redundancies, while over a third of businesses (36%) expect to make further cuts to their workforce within the next six months. This coincides with the end of the Furlough scheme in October, and shows a need to bridge the gap further, until manufacturing is able to operate at full capacity once again.
While the government support has benefited businesses across the UK, only 32% of SME manufacturers surveyed have taken advantage of the Coronavirus Business Interruption Loan Scheme (CBILS). The VAT payment holiday was welcomed by
over half of those surveyed. The results and feedback received indicates that additional sector-specific government support is still required to ensure that the manufacturing industry, key for research and development, export, and high value jobs, continues to recover and grow over the coming months.
The report also shows that protecting cashflow is of continued importance as manufacturers move out of lockdown, with over a third of businesses surveyed expecting future investment in ca
The report also shows that protecting cashflow is of continued importance as manufacturers move out of lockdown, with over a third of businesses surveyed expecting future investment in capex and staff to decrease between now and January 2021.
Nick Golding, Managing Director at SWMAS (below), said: “The latest Manufacturing Barometer shows that over 75% of businesses have had their sales significantly impacted, and only a small number have been able to access government support schemes to help them survive. The survey shows a picture of resilience and innovation from a sector that is doing its best to survive the COVID-19 crisis, but more still needs to be done to get it back on its feet.
“While the figures represent an improvement from the previous quarter, it is clear that many SME manufacturers are still finding the current climate challenging. Nearly 80% of businesses have had to review cashflow forecasts to help mitigate the impact of COVID-19, whilst at the same time, a third are also coming under pressure from customers to extend payment terms, further stretching them financially.
“Our survey shows that manufacturers have been busy adapting their businesses as necessary over the last three months; restarting and increasing production, identifying new customers and suppliers, upskilling existing staff, and developing new products and processes in an attempt to overcome current challenges.
“That said, 38% of respondents indicated that some of their production is still on hold due to either customer or supplier closures, which will continue to impact them over the coming months. As a result, 41% have identified a need for financial and/or business support to help them identify new supply chains as part of their recovery strategy.”
Manufacturers were predicting a drastic drop in profits last quarter, with only 7% expecting an increase within six months. The latest findings show that a much larger number (33%) are now expecting profits to grow in that same period. Despite this confidence from a segment of the market, almost half of the businesses surveyed – 48% – still expect profits to fall further between now and 2021.
Martin Coats, Managing Director at MGP, said “Although it’s great to hear how manufacturers have utilised this time to enhance their capabilities, with 35% having already developed new products, a further 35% recognise the need to do the same, but require financial and/or business support to do so. Similarly, despite redundancies being necessary for some, it’s encouraging to see that 23% of those questioned have been able to upskill their staff during this time. However, 32% need
additional support for this to be actioned, which must be available to help them reduce the need to cut more jobs wherever possible.
“To help manufacturers survive and grow, the government also needs to work harder in communicating some of its core messages. 22% of firms surveyed stated that they need further clarity on safe social distancing in the workplace, which is a vital implementation to help them satisfy orders and successfully serve their customers.
“Furthermore, over a quarter of respondents stated that COVID-19 has negatively affected their Brexit preparations. This is another issue above and beyond COVID-19 that must be addressed by the end of 2020 to prevent further economic problems for an industry just beginning to get back on its feet.
Confectionery case study
The COVID-19 pandemic has caused various challenges for many manufacturers across the country, however, with the company’s determination for safety and success, the businesses growth has not been deterred.
Like many businesses Daniel’s Delights are adapting to a ‘new normal’ and conducting their business within the restrictions of social distancing. As they commence production, concerns were growing around keeping their staff safe and motivated, maintaining customer retention, while finding access to finance and continuing to meet the expectations of their customers and suppliers.
The governments furlough scheme assisted the business, without it they would have had to make redundancies across the business. Alongside the furlough scheme, capital repayment holidays on loans and the bounce back loan supported by government helped support their cashflow while supporting their short-term working capital requirements.
Prior to the pandemic, Daniel’s Delights has been focussed on its growth. For the past four years they have been working closely with the Manufacturing Growth Programme and the wider Staffordshire business support programmes available.
Phil Somers, Manufacturing Growth Manager for the Manufacturing Growth Programme (MGP), has supported the business by helping them to access grant funding towards the cost of business improvement projects for marketing and accreditation whilst also supporting their capital investment opportunities.
Recently receiving a grant towards the purchase of a 2000kg chocolate melting and holding tank, this has allowed the company to triple their daily production of chocolate. To further improve this process, it was identified that an automated box making machine was required to automate the packaging of the chocolate.
Daniel’s Delights have developed on their recovery plans which involve immediate plans to maintain their staffing while responding to changes in buyer behaviour and increase their online presence to increase sales.
Under normal circumstances the business would seek to increase market presence, volumes, and profitability. But with recovery being at the forefront of their strategic plans, new opportunities have swiftly been created and implemented by the dynamic Chocolatier.