SMEs in manufacturing and engineering optimistic for continued growth in 2013

The manufacturing and engineering sector remains upbeat about 2013 following a highly successful 2012. The optimistic forecast comes from the second annual SME Manufacturing Survey from MHA, a UK wide group of independent accountants and business advisors.

The survey of 295 SMEs from a variety of sub-sectors within manufacturing and engineering found that growth predictions for the sector remain strong.

Last year’s survey saw 78% of the industry predicting growth and 33% anticipating growth of more than 10%. The 2013 benchmarking survey revealed that these predictions were accurate; 67% of respondents reported growth in 2012 and 33% reported growth of 10% plus.

The outlook remains positive for 2013, further illustrating the industry’s resilience in spite of the current economic climate, with 75% predicting growth in 2013 and more than 30% anticipating growth in excess of 10%. However, the survey also highlighted a number of important issues and consistent trends, which cannot be ignored if the sector is to rebalance the UK economy.

Overall findings:

– Intent to invest in Research and Development has increased by as much as 10% versus 2012.

– Research and Development spend remains low for the majority of respondents although there is evidence to suggest that companies in the sector do not fully understand the definition of R&D.

– Exporting remains key with 71% of the sector already exporting to a number of destinations.

– There is a definite need to increase the appeal of working in the manufacturing and engineering sector – 58% of respondents struggle to find employees with the right skills.

– Perceptions of bank funding have improved; however, there is still a perceived lack of access to grants.

“Early expectations for 2013 are optimistic, with SME manufacturers and engineers anticipating growth, which is vital if the sector is to play a role in reinvigorating and re-balancing the UK economy,” comments Chris Coopey, Head of Manufacturing at MHA

The burden of red tape and the lack of national strategy for the sector continue to trouble the vast majority of manufacturers and engineers. Vince Cable’s recent industrial strategy is doing little to allay difficulties with only 2% believing his strategy will successfully address the needs of SME businesses.

Exports remain essential to industry profitability with the Eurozone being identified as the most popular destination followed closely by Asia, (including China), with North America proving the third most popular. 71% of respondents already take advantage of export opportunities. However, the survey highlighted perceived barriers to exporting with sourcing and understanding local partners cited as key barriers followed by regulatory issues in export locations, funding and cash flow.

There are signs of optimism when it comes to funding. Two thirds of respondents feel that they receive adequate funding from their banks and 86% indicate that they have not had a funding request rejected. The situation for grants however is less optimistic, with 40% believing they have no access to grant funding and only 35% who have access intending to apply.

“Continued concerns over funding, in particular grants, may be indicative of the rigorous administrative process required to gain grant funding. It is clear from the survey results that more needs to be done to educate, inform and raise awareness of access to funding and how to obtain it,” reiterates Coopey

Bridging the skills gap remains high on the agenda with 58% indicating that they struggle to find employees with the right skills for the job. Respondents felt the sector does not have the career cachet it deserves, and more needs to be done to position manufacturing and engineering as a desirable career option.

Employment plans were stable with just 8% indicating they expected to reduce staff numbers. 46% indicated that, excluding apprentices, they expected staff numbers to increase with the majority of these being production focused. Apprentices and trainees remain of paramount importance with 51% of the businesses surveyed planning to take on apprentices or trainees in 2013. However, only 8% intended to take on more than four apprentices or trainees.

Investment in Research and Development (R&D) is critical if the industry is to achieve long term competitiveness. The number of businesses investing in R&D in 2013 has increased from 37% in 2012 to 47% who are aiming to invest up to 2% of turnover in R&D in the coming year.

Coopey continues: “Despite increased spend in R&D, there are still too few companies making the most of tax benefits. Just 17% intend to make a tax credit claim. Only half of the businesses we surveyed are aware of how Patent Box could benefit their business. There is huge value in schemes like Patent Box and this missed opportunity reduces overall spending on R&D with only 12% indicated the scheme would be advantageous to their business.”

“HMRC must do more to help companies understand tax credits. The revenue has acknowledged that there is uncertainty from businesses about what they can claim for and when. We can encourage our own clients but HMRC could do better to encourage the sector to take advantage of the higher rates of relief available.”

Pricing and costs emerge as a contentious issue within the report. While 83% of respondents predicted an increase in their cost of production, only 47% felt they could pass on price increases to their customers. When it comes to absorbing the price increases, improved productivity, sourcing via new suppliers and implementing cost savings were listed as key. However, despite indicating a need to improve productivity, plans to develop lean manufacturing processes still remain limited with only 37% of respondents intending to introduce them.