Secret Smile

Rumour has it that UK manufacturing will star in a blockbuster wildlife documentary special in 2013. Live from the shopfloor, David Attenborough will marvel at the extraordinary survival power of a species to rival the bacterium found blossoming in volcano vents and toxic lakes. The longest recession for a century and eurozone debt crisis can't stop confidence surging among frontline managers, according to WM's Manufacturing Outlook research. Fifty five per cent of manufacturers are positive about business prospects for 2013. Nearly 80% believe they'll equal or better this year's balance sheet. And eclipsing the 2012 accounts is going to be no mean feat. A whopping 60% of factories posted revenue growth this year as manufacturers shunned all the talk of doom and gloom and delivered bloom instead. Rising from recession-proof bunkers The feat was driven by a relentless pursuit of operational efficiency, cost control and product development. By concentrating on factors they can control, manufacturers appear to have developed some immunity against those they can't. A lucid business strategy and continuous improvement initiatives geared around delivering quality have served as a build your own recession-proof bunker. Efficiency gains mean firms can build faster, cheaper and better, leading to market gains at home and – more importantly – abroad. Just 18% of respondents say the double dip recession has hit them hard, with 71% believing they've dodged the worst. Leisure operators, caterers, property developers, retailers and pretty much anyone with a business stake in UK plc would sell the family silver for a slither of that stoicism. And confidence is only going to grow next year. Economists predict a 1.4% growth in UK GDP in 2013 compared to this year's static 0.1%. Manufacturers are buoyed by the first chinks of light in the long recessionary cloud, according to WM's Outlook report. Respondents offered resurgent order books and better sales forecasts when asked to explain their optimism ahead of 2013. "I have the general feeling the environment in the long term will continue to improve and support further manufacturing activity in the UK," said one. "Our major markets should pick up, giving us improved opportunities," added another respondent. Asia and the US define those major markets for many, with respondents waiting anxiously for US policymakers to tackle the fiscal cliff after Barack Obama's election victory. Of course the economists may be wrong. Downgraded growth forecasts have been a familiar sight of late. But if 2013 does fall short and the thunder rumbles over the global economy once again, then manufacturers will shrug their shoulders and shelter in the bunker for a few more months. As one manufacturer remarked: "I expect the coming 12 months to be tough. But I'm optimistic that manufacturing will continue to find ways to make further improvements, increase competitiveness and improve efficiency." The cost of boycotting the bank That same independent streak looms large over investment decisions, the Manufacturing Outlook report reveals. A staggering 81% of manufacturers didn't trouble their bank for a loan, overdraft extension or any other kind of financial service in 2012. Businesses touted as the powerhouse of the UK's economic recovery have turned their back on commercial lenders. Over half say they'll raise capital through savings or private backers. And it's not as if the money is not there to borrow. Nine in ten of the minority of manufacturers who went to banks for support had their applications approved. Manufacturing is increasingly in vogue among financiers, evidence suggests. Thirteen major banks and building societies have committed to a Funding for Lending scheme that on paper will see an extra £80 billion made available to businesses at reduced rates. Vince Cable has also heralded a new industry bank to kick-start cheap finance as part of the government's industrial strategy. However, on current form we could end up awash with unwanted financial products. The mechanics for lending might be moving forward but mindsets are firmly stuck in the past. "They are not truly there for you in business," said one respondent, quizzed on why his firm had gone it alone. "It is better to invest yourself if you can." Such self sufficiency has long been a badge of honour within manufacturing quarters. Yet there's a valid counter argument that conservatism comes at a cost. Mid-sized British firms lag behind their German and French rivals in exporting to high growth BRIC economies according to research. Being a time-poor, resource-stretched SME isn't conducive to cracking a new product launch in Penang. Our gazelles – the companies that can deliver explosive growth – are being out run because of a reluctance to take bigger borrowing risks. New year, new gear The reserve appears to have been lost when it comes to investment spend though. The cheque books are out and plant equipment is top of the new year shopping list. Nearly nine in ten will match or better 2012 budgets, which were in themselves a giant uplift on 2010 levels. Compressors, CNC machines and other efficiency-boosting applications are by far the most popular buy. However, there also promises to be heavy backing of human capital as 47% of respondents say staff training is an investment priority. Locker makers could be in for a good year as manufacturers try to accommodate a wave of new workers. Over a third plan to boost workforce numbers in 2013 hot on the heels of a 37% increase in employee bases this year. Recruitment is being driven by burgeoning demand for goods from Asia. Common wisdom is turned on its head as the Far East sparks a bout of hiring rather than the firing. Nearly 35% say exports to BRIC economies are their biggest growth opportunity in 2013. Exports to the EU are also hot property as firms bank on playing away to deliver the biggest pay days next year. One final surprise In a survey full of surprises, it's perhaps fitting that there is a final sting in the tale. Say it very quietly but 30% of respondents say they have finally seen some more positive intent from Westminster towards the manufacturing sector – but Downing Street might want to put the champagne back on ice as a further 73% note a failure to deliver on the hyperbole through policy. So 2013 is rich in promise. Despite the wider recession, the talk within manufacturing is of optimism, profit and growth potential – plenty of cause for cheer. The super species that is UK Manufacturing looks set to come up trumps again. But until we can heal deeper rifts with politicians and banks, the growth is set to come in the same old hostile environment we've learned to call home. WM will be hosting a roundtable discussion with frontline manufacturers to debate the findings of our Outlook research in depth. Look out for a full report in the January issue. Methodology 176 senior managers and decision makers from a spectrum of manufacturing sites completed the survey. The sample included representatives from food and drink, textiles and clothing, automotive electrical, aerospace and defence and other manufacturing sectors. Respondents also represented sites large and small from 1-49 employees to over 500. Site Verdicts The end of a long hard winter Jarrod Dooley, production manager at SDC Trailers, Mansfield How was 2012 for you? "We had a frenetic first half of the year but things have started to slow down with the new Type approval regs. This means all trailers, their components and systems will have to meet European Commission standards before they can be sold. Type approval has caused a lot of hesitancy in the market. Overall demand has been very similar to 2011 but thanks to CI we've been doing it much more efficiently." Are you optimistic or pessimistic about 2013 and why? "Broadly optimistic once everyone's got their head around the new regulations. I can see it being a good year as we start to come out of recession." How have you been hit by the recession? "I've only been in the position 16 months so I have little to benchmark against. I don't think there's any doubt that this is a bitter recession. I joined SDC from a manufacturer in the baby care market and we saw declining volumes. When people are hit so hard that they're cutting back spending on their baby, you know it's hard." How would you describe morale? "Really good, personally and at a site level. I'm enjoying a role where I have a lot of autonomy. We're starting to see the benefits of some of the CI initiatives I've introduced. It's difficult for people when change first happens, but now they're reaping the rewards." What plans do you have for investment? "I'm hopeful we'll invest in new machinery. We've seen some great advances in efficiency from looking at our processes without spending a penny. To reach the next step we'll have to invest." New factory, new jobs, new hope Gareth Hankins, director, group manufacturing services division at Renishaw, Stroud How was 2012 for you? "We have been very busy. There is ongoing uncertainty in the global economy and particularly the eurozone. However we've seen a real boom in Asia and revenue from China is double what it was in the same quarter last year." How badly has the recession hit you? "On paper it hasn't. It's been a record-breaking year for us. However, the truth is we were hit hard by the recession earlier on. The downturn really struck in 2009 and by last year we were starting to pull out of it." Are you optimistic or pessimistic about 2013 and why? "Broadly positive – we have a huge export business and are hoping to see further growth in Asia and beyond. But like most companies we're keeping an anxious eye on what happens in the eurozone." How is site morale? "It's good. People are positive because they've achieved positive things. We were a winner at the Best Factory Awards this year and the press coverage has given us all a lift." What plans do you have for investment? "We've just opened a new site at Miskin, South Wales, which is an indication of business confidence. We're also heavily investing in new staff. There's been a record apprentice intake of 35 this year and there are 180 job vacancies." We're good at managing in a recession Emma Harbottle, head of operations, Analox How was 2012 for you? "We've been on an upwards slope this year after a tough 2010 and 2011. A lot of our business is in the hospitality sector, so when pubs and restaurants were feeling the pinch from reduced consumer spending we really felt it, too. However, people do seem to be starting to spend more freely again." Are you optimistic or pessimistic about 2013 and why? "If the next couple of months carry on like the last few then I'm definitely upbeat. My concern is that in 2013 the market will return to the peak and trough economics of the past few years. I don't think we'll see the end of the recession, but things will get better." How bad has the recession hit? "As a sector we're very good at managing recession. The weaker businesses have been weeded out. We've had to become ruthlessly efficient and we don't just leave things on a shelf now unless we absolutely have to." What are your plans for investment in 2013? "We don't have a lot of machinery so there are no grand capital equipment investment plans. Our investment will be in product development and we've just recruited a new materials manager." How will you fund the spending? "We're very cash rich so don't really borrow a lot of money. You get charged far less interest on your own reserves but you get paid less interest on the sum, too." Happy, hopeful and hardworking Jonathan Eddy, CEO, B Hepworth How was 2012 for you? "After six years of strong growth, 2012 has been a period of consolidation and also new product introduction. We've made significant improvements in OTIFs and production efficiencies, in turn improving customer experience. This has enabled us to increase market share… 2012 will close a profitable year for both our customers and our company." Are you optimistic or pessimistic about 2013 and why? "Optimistic – we believe there will be steady growth. We'll see increasing order books with a steady return on capital and profit. Around 85% of our business is export so we're looking to break new international markets. If ships and trains aren't being built in the EU, we have to go further afield to Brazil, Russia and India." What's been the toughest thing about this year? "Price pressure from Korean and other European competitors. Overall, we're looking to eclipse our rivals in terms of the quality engineering in our products. But sometimes customers have to find out for themselves... some have asked us to retrofit a ship or train because a competitor's windscreen wiper system didn't match our own." What are your plans for investment in 2013? "We have a couple of capital machinery projects lined up. It's partly driven by a desire to bring assembly back in house but also market pressure to reduce lead times." To read the report in full, download PDF below.